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What changed in MainStreet Bancshares, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of MainStreet Bancshares, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+390 added−320 removedSource: 10-K (2024-03-20) vs 10-K (2023-03-23)

Top changes in MainStreet Bancshares, Inc.'s 2023 10-K

390 paragraphs added · 320 removed · 262 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

72 edited+32 added−15 removed181 unchanged
Biggest changeOur client base is diverse, and we do not have a concentration of commercial business loans in any specific industry segment. Commercial Real Estate Lending . We finance owner-occupied and investment commercial real estate. Our underwriting policies and processes focus on the client’s ability to repay the loan as well as assessment of the underlying real estate.
Biggest changeCommercial loans are written for a variety of business purposes, including government contract receivables, plant and equipment, general working capital, contract administration and acquisition lending. Our client base is diverse, and we do not have a concentration of commercial business loans in any specific industry segment. Commercial Real Estate Lending . We finance owner-occupied and investment commercial real estate.
We believe partnering with FinTechs will provide an opportunity to access to untapped markets and will become a fresh source for growth in low-cost deposits and fee income. We will continue to support the FinTech industry. Consumers in the United States express more confidence banking with FinTechs than traditional banks in many cases.
We believe partnering with FinTechs will provide an opportunity to access untapped markets and will become a fresh source for growth in low-cost deposits and fee income. We will continue to support the FinTech industry. Consumers in the United States express more confidence banking with FinTechs than traditional banks in many cases.
The Bank is subject to the Bank Secrecy Act and other anti-money laundering laws and regulations, including the USA PATRIOT Act of 2001 and the Anti-Money Laundering Act of 2020.
Bank Secrecy Act / Anti-Money Laundering Laws . The Bank is subject to the Bank Secrecy Act and other anti-money laundering laws and regulations, including the USA PATRIOT Act of 2001 and the Anti-Money Laundering Act of 2020.
Federal banking agencies have issued guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking.
Incentive Compensation. Federal banking agencies have issued guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking.
Under the Bank Holding Company Act, a bank holding company is required to act as a source of financial and managerial strength to each of its subsidiary banks and to commit resources to support each subsidiary bank.
Source of Strength . Under the Bank Holding Company Act, a bank holding company is required to act as a source of financial and managerial strength to each of its subsidiary banks and to commit resources to support each subsidiary bank.
See “Risk Factors—We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.” As an emerging growth company: • we may present as few as two years of audited financial statements and two years of related management discussion and analysis of financial condition and results of operations, in contrast to other reporting companies which must provide audited financial statements for three fiscal years; • we are exempt from the requirement to obtain an attestation and report from our auditors on management’s assessment of our internal control over financial reporting under the Sarbanes-Oxley Act of 2002; • we are permitted to provide less extensive disclosure about our executive compensation arrangements, including recently adopted pay versus performance disclsoures; and • we are permitted to include less extensive narrative disclosures than required of other reporting companies, particularly with respect to executive compensation.
See “Risk Factors—We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.” As an emerging growth company: • we may present as few as two years of audited financial statements and two years of related management discussion and analysis of financial condition and results of operations, in contrast to other reporting companies which must provide audited financial statements for three fiscal years; • we are exempt from the requirement to obtain an attestation and report from our auditors on management’s assessment of our internal control over financial reporting under the Sarbanes-Oxley Act of 2002; • we are permitted to provide less extensive disclosure about our executive compensation arrangements, including recently adopted pay versus performance disclosures; and • we are permitted to include less extensive narrative disclosures than required of other reporting companies, particularly with respect to executive compensation.
Board Size: Total Number of Directors 10 Gender: Male Female Non-Binary Gender Undisclosed Number of directors based on gender identity 8 2 — — Number of directors who identify in any of the categories below: African American or Black 1 — — — Alaskan Native or American Indian — — — — Asian — — — — Hispanic or Latinx 1 — — — Native Hawaiian or Pacific Islander — — — — White 6 2 — — Two or More Races or Ethnicities — — — — LQBTQ+ — Undisclosed — 10 Title Ethnically Diverse Female Ethnically Diverse Male White Female White Male Independent Directors 0.0% 25.0% 25.0% 50.0% Executives 0.0% 33.0% 0.0% 67.0% Exec.
Board Size: Total Number of Directors 10 Gender: Male Female Non-Binary Gender Undisclosed Number of directors based on gender identity 8 2 — — Number of directors who identify in any of the categories below: African American or Black 1 — — — Alaskan Native or American Indian — — — — Asian — — — — Hispanic or Latinx 1 — — — Native Hawaiian or Pacific Islander — — — — White 6 2 — — Two or More Races or Ethnicities — — — — LQBTQ+ — Undisclosed — 12 Title Ethnically Diverse Female Ethnically Diverse Male White Female White Male Independent Directors 0.0% 25.0% 25.0% 50.0% Executives 0.0% 33.0% 0.0% 67.0% Exec.
In October 2022, the SEC adopted a final rule directing national securities exchanges, including Nasdaq, to establish listing standards requiring listed companies to adopt policies providing for the recovery or “clawback” of excess incentive-based compensation earned by current or former executive officers during the three fiscal years preceding the date the listed company determines an accounting restatement is required.
In 2022, the SEC adopted a final rule directing national securities exchanges, including Nasdaq, to establish listing standards requiring listed companies to adopt policies providing for the recovery or “clawback” of excess incentive-based compensation earned by current or former executive officers during the three fiscal years preceding the date the listed company determines an accounting restatement is required.
We have developed a live sandbox for our FinTech partners to provide a proof of concept and allow for quick integration and time to market when they are ready to “go-live.” Our transformational subledger combined with our high-touch compliance training goes beyond the industry standards to ensure that our FinTech partners will operate successfully.
We have developed a live sandbox for our FinTech partners to provide a proof of concept and allow for quick integration and time to market when they are ready to “go-live.” Our subledger, combined with our high-touch compliance training, goes beyond the industry standards to ensure that our FinTech partners will operate successfully.
Avenu ™ will provide an embedded banking solution that connects our partners (fintechs, application developers, money movers, and entrepreneurs) directly and seamlessly to our Software as a Service (SaaS) solution. Our transformational subledger combined with our high-touch compliance training goes beyond the industry standards to ensure that our Fintech partners will prosper.
Avenu will provide 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 transformational subledger combined with our high-touch compliance training goes beyond the industry standards to ensure that our Fintech partners will prosper.
The guidance provides that the strength of an institution’s lending and risk management practices with respect to such concentrations will be taken into account in supervisory guidance on evaluation of capital adequacy. Regulation of the Company . The Company is a bank holding company under the Bank Holding Company Act that has elected status as a financial holding company.
The guidance provides that the strength of an institution’s lending and risk management practices with respect to such concentrations will be taken into account in supervisory guidance on evaluation of capital adequacy. 16 Regulation of the Company . The Company is a bank holding company under the Bank Holding Company Act that has elected status as a financial holding company.
MainStreet Bancshares Inc. 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 and MainStreet Community Capital. The Company is authorized to issue 10,000,000 shares of common stock, par value $4.00 per share.
MainStreet Bancshares Inc. 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 and MainStreet Community Capital, LLC. The Company is authorized to issue 10,000,000 shares of common stock, par value $4.00 per share.
In general, enforcement actions may be initiated for violations of law and regulations and unsafe or unsound practices. We are also required to file certain reports with, and otherwise comply with the rules and regulations of, the SEC. 14 Regulatory Capital Requirements .
In general, enforcement actions may be initiated for violations of law and regulations and unsafe or unsound practices. We are also required to file certain reports with, and otherwise comply with the rules and regulations of, the SEC. Regulatory Capital Requirements .
We guide our FinTech partners through the complex maze of banking regulations by integrating compliance and fraud detection throughout the framework of our solution as well as in-person training for FinTech partners team members.
We guide our FinTech partners through the complex maze of banking regulations by integrating compliance and fraud detection throughout the framework of our solution as well as in-person training for FinTech partners' team members.
We believe that a diverse workforce enhances our ability to serve our customers and our communities by enabling us to better understand their financial needs and to provide necessary and appropriate financial services. Seventy-five percent of the Company’s employees self-identify as either female or ethnically diverse (defined as all Equal Employment Opportunity Commission classifications other than white).
We believe that a diverse workforce enhances our ability to serve our customers and our communities by enabling us to better understand their financial needs and to provide necessary and appropriate financial services. Seventy-four percent of the Company’s employees self-identify as either female or ethnically diverse (defined as all Equal Employment Opportunity Commission classifications other than white).
Section 23B and Regulation W generally require a bank’s transactions with affiliates to be on terms substantially the same, or at least as favorable to the bank, as those prevailing at the time for comparable transactions with non-affiliated companies. 13 The Bank is also subject to certain restrictions on extensions of credit to executive officers, directors, certain principal shareholders and their related interests.
Section 23B and Regulation W generally require a bank’s transactions with affiliates to be on terms substantially the same, or at least as favorable to the bank, as those prevailing at the time for comparable transactions with non-affiliated companies. 15 The Bank is also subject to certain restrictions on extensions of credit to executive officers, directors, certain principal shareholders and their related interests.
For example, MainStreet Bank contracts with an asset disposal company to ensure that electronic assets, including monitors, security cameras, and batteries, are disposed of and recycled in an appropriate and environmentally sensitive manner. We have long allowed and even encouraged our employees to telecommute. Approximately 15% of our employees work remotely full-time.
For example, MainStreet Bank contracts with an asset disposal company to ensure that electronic assets, including monitors, security cameras, and batteries, are disposed of and recycled in an appropriate and environmentally sensitive manner. We have long allowed and even encouraged our employees to telecommute. Approximately 13% of our employees work remotely full-time.
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. In January 2023, MainStreet Community Capital submitted an application to apply for the 2022 NMTC program allocation. Allocation awards are expected to be announced during the fourth quarter of 2023.
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. In December 2023, MainStreet Community Capital submitted an application to apply for the 2023 NMTC program allocation. Allocation awards are expected to be announced during the fourth quarter of 2024.
Bureau of Labor Statistics, Data as of November 2022 Note: Data is not seasonally adjusted As the home of the federal government, the broader Washington, D.C. region benefits from consistent population growth and remains well positioned to capitalize on any increase in government spending and infrastructure.
Bureau of Labor Statistics, Data as of November 2023 Note: Data is not seasonally adjusted As the home of the federal government, the broader Washington, D.C. region benefits from consistent population growth and remains well positioned to capitalize on any increase in government spending and infrastructure.
Consistent with our culture, we worked over the past six years with a small group of clients in order to understand the risks associated with this business line. We developed an infrastructure to identify, measure, monitor and control the risks associated with FinTechs, providing BaaS, and payment systems in general.
Consistent with our culture, we worked over the past seven years with a small group of clients in order to understand the risks associated with this business line. We developed an infrastructure to identify, measure, monitor and control the risks associated with FinTechs, providing BaaS, and payment systems in general.
We seek highly qualified directors with skills needed for a forward-looking Board. The Company had a technology expert on the Board in 2011, well before it became a recommended practice for community banks. At the Board level, the Company has seven independent directors, out of a totel of ten.
We seek highly qualified directors with skills needed for a forward-looking Board. The Company had a technology expert on the Board in 2011, well before it became a recommended practice for community banks. At the Board level, the Company has seven independent directors, out of a total of ten.
These activities include securities underwriting and dealing, insurance agency and underwriting, and making merchant banking investments. On October 12, 2021, the Company filed an election to be treated as a financial holding company. Incentive Compensation.
These activities include securities underwriting and dealing, insurance agency and underwriting, and making merchant banking investments. On October 12, 2021, the Company filed an election to be treated as a financial holding company.
A bank that is not well-capitalized is subject to certain restrictions on brokered deposits and interest rates on deposits. A bank that is not at least adequately capitalized is subject to numerous additional restrictions, and a guaranty by its holding company is required.
A bank that is not well-capitalized is subject to certain restrictions on wholesale deposits and interest rates on deposits. A bank that is not at least adequately capitalized is subject to numerous additional restrictions, and a guaranty by its holding company is required.
Additionally, the investment portfolio is used to balance the Bank’s asset and liability position. The Bank invests in fixed rate or floating rate instruments as necessary to reduce interest rate risk exposure. At December 31, 2022, the held-to-maturity portfolio, which is primarily composed of municipal securities and is carried at amortized cost, totaled $17.6 million.
Additionally, the investment portfolio is used to balance the Bank’s asset and liability position. The Bank invests in fixed rate or floating rate instruments as necessary to reduce interest rate risk exposure. At December 31, 2023, the held-to-maturity portfolio, which is primarily composed of municipal securities and is carried at amortized cost, totaled $17.3 million.
The Company is proud to have four veterans on its team as well. Governance As indicated in the discussion of Board Leadership and Oversight, the Company believes effective oversight by the Board of Directors is an essential element of a financially sound and well-managed bank.
The Company is proud to have three veterans on its team as well. 11 Governance As indicated in the discussion of Board Leadership and Oversight, the Company believes effective oversight by the Board of Directors is an essential element of a financially sound and well-managed bank.
We offer a diversified loan portfolio consisting primarily of commercial business and owner-occupied and investment commercial real estate loans with higher risk-adjusted returns, shorter maturities and more sensitivity to interest rate fluctuations, while still providing high quality loan products for single-family and multi-family residential borrowers. Stress Testing.
We offer a diversified loan portfolio consisting primarily of commercial business and owner-occupied and investment commercial real estate loans with higher risk-adjusted returns, shorter maturities and more sensitivity to interest rate fluctuations, while still providing high quality loan products for single-family and multi-family residential borrowers. 7 Commercial Business Lending .
At that date, the available-for-sale portfolio, which is composed of U.S. Treasury securities, collateralized mortgage-backed securities, subordinated debt of other financial institutions and U.S. Government agency securities and is carried at fair value, totaled $62.6 million. For additional information, see Note 3 of Notes to Consolidated Financial Statements. Subordinated Notes .
At that date, the available-for-sale portfolio, which is composed of U.S. Treasury securities, collateralized mortgage-backed securities, subordinated debt of other financial institutions and U.S. Government agency securities and is carried at fair value, totaled $59.9 million. For additional information, see Note 3 of Notes to Consolidated Financial Statements. Subordinated Notes .
Bureau of Labor Statistics, S&P Global Market Intelligence The Washington, D.C. MSA is a desirable market for a broad range of companies in a variety of industries, including sixteen companies from the 2022 Fortune 500 list, and six of the United States’ largest 100 private companies, according to the 2022 Forbes list of largest private companies by revenue.
Bureau of Labor Statistics, S&P Global Market Intelligence The Washington, D.C. MSA is a desirable market for a broad range of companies in a variety of industries, including twenty-seven companies from the 2023 Fortune 500 list, and six of the United States’ largest 100 private companies, according to the 2023 Forbes list of largest private companies by revenue.
For the years ended December 31, 2022 and 2021, our return on average assets was 1.53% and 1.32%, respectively, and our return on average equity was 13.98% and 12.38%, respectively. We are focused on growing business relationships and building core deposits, profitable loans and non-interest income.
For the years ended December 31, 2023 and 2022, our return on average assets was 1.38% and 1.53%, respectively, and our return on average equity was 12.66% and 13.98%, respectively. We are focused on growing business relationships and building core deposits, loans and non-interest income.
Additionally, the Company is authorized to issue 2,000,000 shares of preferred stock, par value $1.00 per share. There were 7,442,743, shares of common stock outstanding and 28,750 shares of 7.50% Series A Fixed-Rate Non-Cumulative Perpetual Preferred Stock outstanding at December 31, 2022.
Additionally, the Company is authorized to issue 2,000,000 shares of preferred stock, par value $1.00 per share. There were 7,527,415, shares of common stock outstanding and 28,750 shares of 7.50% Series A Fixed-Rate Non-Cumulative Perpetual Preferred Stock outstanding at December 31, 2023.
These promotions were distributed as follows: 2022 Promotions Diversity Ethnically Diverse White Female 11 9 Male 5 11 The Company celebrates diversity throughout the year and fosters opportunities to learn about different cultures, religious practices, traits and differences.
These promotions were distributed as follows: 2023 Promotions Diversity Ethnically Diverse White Female 11 15 Male 13 9 The Company celebrates diversity throughout the year and fosters opportunities to learn about different cultures, religious practices, traits and differences.
MSA Employment by Sector Employment Sector by Percent Mining, Lodging, and Construction 5.0% Manufacturing 1.7% Trade, Transportation, and Utilities 12.2% Information 2.4% Financial Activities 4.4% Professional and Business Services 24.2% Education and Health Services 13.2% Leisure and Hospitality 9.3% Other Services 6.0% Government 21.6% Source: U.S.
MSA Employment by Sector Employment Sector by Percent Mining, Lodging, and Construction 4.9% Manufacturing 1.7% Trade, Transportation, and Utilities 11.7% Information 2.4% Financial Activities 4.5% Professional and Business Services 23.9% Education and Health Services 13.6% Leisure and Hospitality 9.5% Other Services 5.9% Government 21.6% Source: U.S.
In addition, the rule requires a bank service provider to notify affected banking organization customers as soon as possible when the provider determines that it has experienced a computer-security incident that has materially affected or is reasonably likely to materially affect banking organization customers for four or more hours. Bank Secrecy Act / Anti-Money Laundering Laws .
In addition, the rule requires a bank service provider to notify affected banking organization customers as soon as possible when the provider determines that it has experienced a computer-security incident that has materially affected or is reasonably likely to materially affect banking organization customers for four or more hours.
Support 35.0% 18.0% 24.0% 23.0% All Employees 30.0% 20.0% 24.0% 26.0% The Company is focused on equal pay for equal work, and on developing all employees to reach their full potential. The Company realizes that hiring a diverse workforce that is representative of the diversity of the local population also allows us to better serve our marketplace.
Support 42.0% 17.0% 18.0% 23.0% All Employees 32.0% 19.0% 23.0% 26.0% The Company is focused on equal pay for equal work, and on developing all employees to reach their full potential. The Company realizes that hiring a diverse workforce that is representative of the diversity of the local population also allows us to better serve our marketplace.
For further details, see stress test methodology under lending activities. Residential Real Estate Lending . The Bank offers a variety of consumer-oriented residential real estate loans both for purchase and refinancing, most of which are brokered to the secondary market. Consumer Installment Lending . We offer a broad array of consumer loans including term loans and overdraft protection.
For further details, see stress test methodology in the Management's Discussion and Analysis. Residential Real Estate Lending . The Bank offers a variety of consumer-oriented residential real estate loans both for purchase and refinancing, most of which are brokered to the secondary market. Consumer Installment Lending . We offer consumer loans including term loans and overdraft protection.
Median household income growth projections range from 9% to over 14% through 2028. Overall, the Washington D.C. MSA ranks sixth out of the largest 25 MSAs ranked by population estimates as of 2021 according to the Census Bureau. We expect our strategies to benefit from the continued growth in population and high income of our market area’s residents.
Median household income growth projections range from 5% to over 10% through 2029. Overall, the Washington D.C. MSA ranks ninth out of the largest 25 MSAs ranked by population estimates as of 2023 according to the Census Bureau. We expect our strategies to benefit from the continued growth in population and high income of our market area’s residents.
At December 31, 2022, approximately 14.3% of our loan portfolio related to owner occupied commercial real estate loans, and approximately 29.5% of our loan portfolio related to investment commercial real estate. Real Estate Construction Lending . This segment of our portfolio is predominately residential in nature and is composed of loans with short durations.
At December 31, 2023, approximately 16.3% of our loan portfolio related to owner occupied commercial real estate loans, and approximately 26.7% of our loan portfolio related to investment commercial real estate. Real Estate Construction Lending . This segment of our portfolio is predominately residential in nature and is composed of loans with short durations.
We cannot predict what the FDIC assessment rates will be in the future. 12 Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
MainStreet Community Capital, LLC In September 2021, the Company created a community development entity (“CDE”) subsidiary, MainStreet Community Capital, LLC, a Virginia limited liability company, to apply for New Market Tax Credit (“NMTC”) allocations from the U.S. Department of Treasury’s Community Development Financial Institutions Fund.
Additional information can be found in our investor presentations filed quarterly. MainStreet Community Capital, LLC In September 2021, the Company created a community development entity (“CDE”) subsidiary, MainStreet Community Capital, LLC, a Virginia limited liability company, to apply for New Market Tax Credit (“NMTC”) allocations from the U.S. Department of Treasury’s Community Development Financial Institutions Fund.
None of our employees are represented by a collective bargaining agreement. The Board and management are focused on maintaining a strong corporate culture. The Company’s goal is to always hire the most qualified individuals. The Company is located in a diversely populated geography, and the Company’s workforce effectively represents that diversity.
The Board and management are focused on maintaining a strong corporate culture. The Company’s goal is to always hire the most qualified individuals. The Company is located in a diversely populated geography, and the Company’s workforce effectively represents that diversity.
We believe that our core lending and deposit business segments continue to perform well. For each of the fiscal years ended December 31, 2022 and December 31, 2021, our net charge-offs to average loans was 0.00%. As of December 31, 2022, we had only $21,000 in non-performing loans and non-performing assets to total assets was 0.00%.
We believe that our core lending and deposit business segments continue to perform well. For each of the fiscal years ended December 31, 2023 and December 31, 2022, our net charge-offs to average loans were 0.03% and 0.00%, respectively. As of December 31, 2023, we had $1.0 million in non-performing loans and non-performing assets to total assets was 0.05%.
Employees by Generation Pre Baby Booms 0.6 % Baby Boomers 16.5 % Generation X 43.9 % Millennials 34.8 % Generation Z 4.2 % The gender distribution of our employee base is diversified. Employees by Gender Female 55.5 % Male 44.5 % For the fiscal year ended December 31, 2022, we had 36 promotions.
Employees by Generation Pre Baby Booms 0.5 % Baby Boomers 15.6 % Generation X 43.5 % Millennials 34.4 % Generation Z 6.0 % The gender distribution of our employee base is diversified. Employees by Gender Female 54.8 % Male 45.2 % For the fiscal year ended December 31, 2023, we had 48 promotions.
Senior management attends the Board meetings and is available to address any questions or concerns raised by the Board on risk management and any other matters. The independent members of the Board provide independent oversight of the Company's management and affairs.
Senior management attends the Board meetings and is available to address any questions or concerns raised by the Board on risk management and any other matters.
In addition to normal repayment risks, all loans in the Bank’s portfolio are subject to the state of the economy and the related effects on the borrower and/or the real estate market. Generally, longer-term loans have periodic interest rate adjustments and/or call provisions. Senior management monitors the loan portfolio closely minimize past due loans and swiftly address potential problem loans.
In addition to normal repayment risks, all loans in the Bank’s portfolio are subject to the state of the economy and the related effects on the borrower and/or the real estate market. Generally, longer-term loans have periodic interest rate adjustments and/or call provisions.
Fortunately, this approach is second nature to community banks; the challenge is to harness information. We are undertaking efforts to quantify how we make a tangible difference in the communities where we live, play and work. Environmental The Company has a goal of reducing its carbon emissions each year.
We are undertaking efforts to quantify how we make a tangible difference in the communities where we live, play and work. Environmental The Company has a goal of reducing its carbon emissions each year.
The FDIC has authority to increase insurance assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of the Bank.
The FDIC has authority to increase insurance assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of the Bank. We cannot predict what the FDIC assessment rates will be in the future.
Moreover, the bankruptcy law provides that claims based on any such commitment will be entitled to a priority of payment over the claims of the institution’s general unsecured creditors, including the holders of its note obligations. 15 Payment of Dividends . The Company is subject to various restrictions relating to the payment of dividends.
Moreover, the bankruptcy law provides that claims based on any such commitment will be entitled to a priority of payment over the claims of the institution’s general unsecured creditors, including the holders of its note obligations. 17 Dividends, Capital Distributions and Other Payments .
Our Business As of December 31, 2022, MainStreet Bancshares, Inc. had total consolidated assets of $1.9 billion, total net loans of $1.6 billion, total deposits of $1.5 billion and total stockholders’ equity of $198.3 million, and total equity to total assets was 10.30%.
Our Business As of December 31, 2023, MainStreet Bancshares, Inc. had total consolidated assets of $2.0 billion, total net loans of $1.7 billion, total deposits of $1.7 billion and total stockholders’ equity of $221.5 million, and total tangible equity to total tangible assets was 10.24%.
As of December 31, 2022, our legal lending limit for loans to one borrower was approximately $43.0 million. The Bank “in-house” lending limit is 50% of the legal lending limit for all relationships unless the loan is owner occupied, 1 - 4 family/residential or a government contract line of credit.
The Bank “in-house” lending limit is 50% of the legal lending limit for all relationships unless the loan is owner occupied, 1 - 4 family/residential or a government contract line of credit.
At December 31, 2022, the Bank had a tier 1 leverage capital ratio of 15.05%, a common equity tier 1 risk-based capital ratio of 15.47%, a tier 1 risk-based capital ratio of 15.47%, and a total risk-based capital ratio of 16.27%.
At December 31, 2023, the Bank had a tier 1 leverage capital ratio of 14.66%, a common equity tier 1 risk-based capital ratio of 16.22%, a tier 1 risk-based capital ratio of 16.22%, and a total risk-based capital ratio of 17.18%.
Risks inherent in managing a commercial real estate portfolio relate to sudden or gradual drops in property values as well as changes in the economic climate. We attempt to mitigate those risks by carefully underwriting loans of this type and by following appropriate loan-to-value standards. Commercial real estate loans represent the largest segment of the Bank’s loan portfolio.
We attempt to mitigate those risks by carefully underwriting loans of this type and by following appropriate loan-to-value standards. Commercial real estate loans represent the largest segment of the Bank’s loan portfolio.
In addition, as noted above, if the Bank does not maintain the capital conservation buffer required by applicable regulatory capital rules, its ability to pay dividends to the Company will be limited. Federal Securities Law.
No insured depository institution may pay a dividend if, after paying the dividend, the institution would be undercapitalized. In addition, as noted above, if the Bank does not maintain the capital conservation buffer required by applicable regulatory capital rules, its ability to pay dividends to the Company will be limited. Future Regulation .
We are, in many ways, at the beginning of our ESG journey. As we look to the future, we recognize that ESG initiatives require a commitment to the long term, and making an impact requires a willingness to listen to, learn from, and work with stakeholders across our community.
As we look to the future, we recognize that ESG initiatives require a commitment to the long term, and making an impact requires a willingness to listen to, learn from, and work with stakeholders across our community. Fortunately, this approach is second nature to community banks; the challenge is to harness information.
Treasury Department's Community Development Financial Institution (CDFI) Fund. MainStreet Community Capital has applied to the CDFI Fund for an allocation of the New Markets Tax Credits that will be awarded in 2023, and plans to continue to do so annually. Turning to our staff, as of December 31, 2022, the Company employed 168 full-time employees.
MainStreet Community Capital has applied to the CDFI Fund for an allocation of the New Markets Tax Credits , and plans to continue to do so annually. Turning to our staff, as of December 31, 2023, the Company employed 186 full-time employees. None of our employees are represented by a collective bargaining agreement.
A bank with a ratio of tangible equity to total assets of 2.0% or less is subject to the appointment of the FDIC as receiver if its capital level does not improve within 90 days.
A bank with a ratio of tangible equity to total assets of 2.0% or less is subject to the appointment of the FDIC as receiver if its capital level does not improve within 90 days. As of December 31, 2023, the Bank was in compliance with all regulatory capital standards and qualified as “well-capitalized,” under the prompt correction action regulations.
MainStreet Community Capital's focus is to invigorate distressed, low-income communities in the Washington, D.C., metropolitan area by providing capital and other financial services. These investments are intended to spur the creation of quality jobs and services in underserved areas. MainStreet Community Capital has earned its designation as a Community Development Entity (CDE) as defined under the U.S.
These investments are intended to spur the creation of quality jobs and services in underserved areas. MainStreet Community Capital has earned its designation as a Community Development Entity (CDE) as defined under the U.S. Treasury Department's Community Development Financial Institution (CDFI) Fund.
Environmental, Social, and Goverance At MainStreet Bancshares Inc., our overarching focus is to make a positive impact on the communities we serve. The Board and management are aligned regarding the growing importance of Environmental, Social and Governance (ESG) initiatives, and we believe that an emphasis on sustainability can strengthen risk management and enhance value.
The Board and management are aligned regarding the growing importance of Environmental, Social and Governance (ESG) initiatives, and we believe that an emphasis on sustainability can strengthen risk management and enhance value. We are, in many ways, at the beginning of our ESG journey.
Assessment rates for small institutions (those with less than $10 billion in assets) are based on an institution’s weighted average CAMELS component ratings and certain financial ratios and are applied to the institution’s assessment base, which equals its average total assets minus its average tangible equity.
Assessment rates for small institutions (those with less than $10 billion in assets) are based on an institution’s weighted average CAMELS component ratings and certain financial ratios and are applied to the institution’s assessment base, which equals its average total assets minus its average tangible equity. 14 In October 2022, the FDIC adopted a final rule that increased the initial base deposit insurance assessment rate schedules uniformly by 2 basis points beginning with the first quarterly assessment period of 2023.
Employee Age Diversity Age Group 20 – 29 30 – 39 40 – 49 50 – 59 60 + Number of Employees 13 43 44 45 23 Percentage of Total 8% 26% 26% 27% 14% Average Tenure (Years) 1.5 2.75 5.5 5.25 7.5 The age distribution of our employee base is also appropriately diversified. 11 The age distribution of our employees as denoted by generational categories.
Employee Age Diversity Age Group 20 – 29 30 – 39 40 – 49 50 – 59 60 + Number of Employees 11 40 53 52 30 Percentage of Total 6% 22% 28% 28% 16% The age distribution of our employee base is also appropriately diversified. 13 The age distribution of our employees as denoted by generational categories.
This division of MainStreet Bank currently serves money service businesses, payment processers, and Banking-as-a-Service customers and provides the Bank with valuable low-cost deposits and additional streams of fee income. Our SaaS software program will be deployed in 2023.
This division of MainStreet Bank will serve money service businesses, payment processers, and other clients who have a need to embed deposit gathering and payment processing in their mobile Apps. This division provides the Bank with valuable low-cost deposits and additional streams of fee income. Our SaaS software program will be deployed in the second quarter of 2024.
We do not know of any practice, condition or violation that may lead to termination of our deposit insurance. Regulatory Capital Requirements . The Bank is required to comply with applicable capital adequacy requirements adopted by the Federal Reserve and the other federal bank regulatory agencies (the “Basel III Capital Rules”).
The Bank is required to comply with applicable capital adequacy requirements adopted by the Federal Reserve and the other federal bank regulatory agencies (the “Basel III Capital Rules”).
The Bank received an “ Outstanding ” CRA rating in its most recent assessment received on August 22, 2022 by the Federal Reserve. In June 2022, the Federal Reserve and the other federal bank regulatory agencies issued a joint proposal to amend their regulations implementing the CRA.
The Bank received an “ Outstanding ” CRA rating in its most recent assessment received on August 22, 2022 by the Federal Reserve. In October 2023, the Federal Reserve, the Office of the Comptroller of the Currency, and the FDIC issued a final rule to strengthen and modernize the CRA regulations.
We maintain an independent loan review team, and senior management is actively involved with any credits requiring special attention. Capital Position . The Bank exceeds the regulatory guidelines to be classified as “well capitalized.” Our capital position is strong and has consistently grown.
The Bank exceeds the regulatory guidelines to be classified as “well capitalized.” Our capital position is strong and has consistently grown.
In addition, provisions of the USA PATRIOT Act require the federal financial institution regulatory agencies to consider the effectiveness of a financial institution's anti-money laundering activities when reviewing mergers and acquisitions. Commercial Real Estate Lending Concentrations . The federal banking agencies have issued guidance on sound risk management practices for concentrations in commercial real estate lending.
In addition, provisions of the USA PATRIOT Act require the federal financial institution regulatory agencies to consider the effectiveness of a financial institution's anti-money laundering activities when reviewing mergers and acquisitions. Loans and Investments . State commercial banks have authority to originate and purchase any type of loan, including commercial, commercial real estate, residential mortgage or consumer loans.
All credit decisions between $250,000 and $750,000 require concurrence of a senior lender and the Bank’s Chief Credit Officer. Approvals of credits in excess of $750,000 require full consensus of the Officer’s Loan Committee or the Chief Credit Officer and Chief Lending Officer.
All credit decisions between $250,000 and $750,000 require concurrence of the Chief Lending Officer and the Chief Credit Officer. Approvals of credits in excess of $750,000 require full consensus of the Officer’s Loan Committee. We maintain an independent loan review team, and senior management is actively involved with any credits requiring special attention. Capital Position .
The rulemaking process is in its early stages, and the final CRA rule’s impact to our financial condition and results of operations cannot be predicted at this time. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes.
In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes.
The net proceeds were used to fully call the subordinated notes issued in 2016 and to support additional growth for other general business purposes.
In April of 2021, the Company completed an issuance and sale of $30 million in fixed-to-floating subordinated notes at an annual fixed interest rate of 3.75% until April 15, 2026. The net proceeds were used to fully call subordinated notes issued in 2016 and to support additional growth for other general business purposes.
The Company’s common stock is registered under Section 12(b) of the Exchange Act, and the Company is subject to the periodic reporting and other requirements of the SEC under Section 12(b) of the Exchange Act and SEC regulations. 16
The Company’s common stock and depositary shares (each representing a 1/40 th interest in a share of 7.50% Series A Fixed-Rate Non-Cumulative Perpetual Preferred Stock) are registered under Section 12(b) of the Exchange Act, and the Company is subject to the periodic reporting and other requirements of the SEC under Section 12(b) of the Exchange Act and SEC regulations.
In addition to the internal business processes employed in the credit administration area, the Bank engages an outside or independent credit review firm to review the loan portfolio annually. Results of the credit review are used to validate our internal loan ratings and to review independent commentary on specific loans and loan administration activities. Lending Limit .
Senior management monitors the loan portfolio closely to minimize past due loans and swiftly address potential problem loans. In addition to the internal business processes employed in the credit administration area, the Bank engages an outside or independent credit review firm to review the loan portfolio annually.
Vice Pres. 0.0% 17.0% 33.0% 50.0% Senior Vice Pres. 14.0% 10.0% 19.0% 57.0% Vice Pres. 27.0% 38.0% 23.0% 12.0% Asst. Vice Pres. 26.0% 17.0% 35.0% 22.0% Branch 50.0% 17.0% 22.0% 11.0% Admin.
Vice Pres. 0.0% 11.0% 33.0% 56.0% Senior Vice Pres. 21.0% 18.0% 14.0% 46.0% Vice Pres. 26.0% 30.0% 22.0% 22.0% Asst. Vice Pres. 17.0% 26.0% 48.0% 9.0% Branch 53.0% 11.0% 26.0% 11.0% Admin.
Area Total Population as of 2022 (Actual) Population Change 2010-2023 Projected Population Change 2023-2028 Median Household Income 2022 Median Household Income Projected Change 2023-2028 Unemployment Rate as of November 2022 Unemployment Rate as of November 2021 District of Columbia 679,031 12.85 % 1.55 % $104,110 14.15 % 4.5 % 5.7 % Arlington County 236,413 13.85 % -0.01 % 131,529 9.63 % 2.1 % 2.6 % Fairfax County 1,146,153 5.93 % 0.79 % 142,162 13.55 % 2.5 % 2.4 % Loudoun County 439,045 40.54 % 6.73 % 166,963 12.40 % 2.5 % 2.2 % Prince William County 492,962 22.71 % 4.23 % 121,416 13.67 % 2.8 % 2.8 % United States 334,500,069 8.34 % 2.14 % 73,503 13.37 % 3.3 % 3.9 % Source: U.S.
Area Total Population as of 2024 (Actual) Population Change 2010-2024 Projected Population Change 2024-2029 Median Household Income 2024 Median Household Income Projected Change 2024-2029 Unemployment Rate as of November 2023 Unemployment Rate as of November 2022 District of Columbia 679,947 -1.39 % 1.92 % $98,916 7.28 % 4.8 % 4.5 % Arlington County 239,054 0.17 % 1.77 % 134,727 6.37 % 2.2 % 2.1 % Fairfax County 1,141,875 -0.73 % 0.86 % 142,822 5.55 % 2.5 % 2.5 % Loudoun County 442,613 5.14 % 6.31 % 143,652 5.68 % 2.6 % 2.5 % Prince William County 496,046 2.87 % 4.36 % 122,657 5.46 % 2.8 % 2.8 % United States 336,157,119 1.42 % 2.40 % 75,874 10.12 % 3.5 % 3.3 % Source: U.S.
As of December 31, 2022, the Bank was in compliance with all regulatory capital standards and qualified as “well-capitalized,” under the prompt correction action regulations.See Note [ 16] of Notes to Consolidated Financial Statements. Transactions with Related Parties .
See Note 16 of Notes to Consolidated Financial Statements. Transactions with Related Parties .
Removed
We stress test our loan portfolio on a quarterly basis and measure the results against our capital profile.
Added
Our underwriting policies and processes focus on the client’s ability to repay the loan as well as an assessment of the underlying real estate. Risks inherent in managing a commercial real estate portfolio relate to sudden or gradual drops in property values as well as changes in the economic climate.
Removed
We multiply the total outstanding amount for each loan category by the highest quarter historical loss for that category in order to determine the stressed loss for commercial business loans, residential real estate lending, owner-occupied commercial real estate lending and consumer instalment lending. We stress test our investor-owned commercial real estate using three separate methodologies.
Added
Results of the credit review are used to validate our internal loan ratings and to review independent commentary on specific loans and loan administration activities. Lending Limit . As of December 31, 2023, our legal lending limit for loans to one borrower was approximately $46.8 million.
Removed
If a property fails more than one of the three tests, we extend the highest exposure amount and add on 10% for selling costs. • An immediate and sustained increase in interest rates, which would increase interest expense for the borrower; • An immediate and sustained increase in vacancy, which would decrease rental income; and • An immediate and sustained change in the capitalization rate, or “cap rate,” which would decrease properties’ collateral values.
Added
The independent members of the Board provide independent oversight of the Company's management and affairs. 10 Environmental, Social, and Governance At MainStreet Bancshares Inc., our overarching focus is to make a positive impact on the communities we serve.
Removed
We stress test the construction lending portfolio by applying exponential discounting (k factor) 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. 7 The total estimated losses from the loan stress tests are subtracted from the capital account and the regulatory ratios are recalculated.
Added
In our lending portfolio, we seek opportunities to support energy efficiency and renewable energy. Social In 2022, the establishment of MainStreet Community Capital is another business initiative we have taken to support ESG initiatives in our communities. MainStreet Community Capital's focus is to invigorate distressed, low-income communities in the Washington, D.C., metropolitan area by providing capital and other financial services.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

56 edited+20 added−13 removed168 unchanged
Biggest changeOur ability to provide our products and services, many of which are internet-based, and communicate with our customers, depends upon the management and safeguarding of information systems and infrastructure, networks, software, data, technology, methodologies and business secrets, including those of our service providers.
Biggest changeDeep fakes could have a material impact on the Company in a number of ways, including: ● Loss of reputation - deep fakes could be used to damage a company's reputation by creating false or misleading content that is attributed to the company, ● Financial losses - deep fakes could be used to manipulate the stock market by creating false or misleading information about a company's financial performance, and ● Legal liability - deep fakes could expose companies to legal liability for defamation, copyright infringement, or other claims. 24 Our ability to provide our products and services, many of which are internet-based, and communicate with our customers, depends upon the management and safeguarding of information systems and infrastructure, networks, software, data, technology, methodologies and business secrets, including those of our service providers.
Additionally, to the extent that economic conditions worsen, impacting our consumer and commercial borrowers or underlying collateral, and credit losses are worse than expected, as may be caused by persistent inflation, an economic recession or otherwise, we may increase our provision for loan losses, which could have an adverse effect on our results of operations and could negatively impact our financial condition.
Additionally, to the extent that economic conditions worsen, impacting our consumer and commercial borrowers or underlying collateral, and credit losses are worse than expected, as may be caused by persistent inflation, an economic recession or otherwise, we may increase our provision for credit losses, which could have an adverse effect on our results of operations and could negatively impact our financial condition.
There are many factors that may impact the market price and trading volume of our common stock, including, without limitation: • actual or anticipated fluctuations in our operating results, financial condition or asset quality; • operating results that vary from the expectations of management, securities analysts and investors; • changes in expectations as to our future financial performance; • operating and stock price performance of companies that investors deem comparable to us; • future issuances of our common stock or other securities; • changes in general economic or business conditions; • changes in the credit, mortgage and housing markets, the markets for securities relating to mortgages or housing, and developments with respect to financial institutions generally; • proposed or adopted changes in laws, regulations or policies affecting us; • significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving our competitors or us; and • other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services. 26 The Company depends on the Bank for dividends, distributions and other payments.
There are many factors that may impact the market price and trading volume of our common stock, including, without limitation: • actual or anticipated fluctuations in our operating results, financial condition or asset quality; • operating results that vary from the expectations of management, securities analysts and investors; • changes in expectations as to our future financial performance; • operating and stock price performance of companies that investors deem comparable to us; • future issuances of our common stock or other securities; • changes in general economic or business conditions; • changes in the credit, mortgage and housing markets, the markets for securities relating to mortgages or housing, and developments with respect to financial institutions generally; • proposed or adopted changes in laws, regulations or policies affecting us; • significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving our competitors or us; and • other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services. 29 The Company depends on the Bank for dividends, distributions and other payments.
From time to time, we implement new lines of business, or offer new products and product enhancements as well as new services within our existing lines of business and we will continue to do so in the future. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed.
From time to time, we implement new lines of business, or offer new products and product enhancements as well as new services within our existing lines of business and we will continue to do so in the future. There are risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed.
These businesses frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete and may experience substantial volatility in operating results, any of which may impair a borrower’s ability to repay a loan.
These businesses frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need additional capital to expand or compete and may experience volatility in operating results, any of which may impair a borrower’s ability to repay a loan.
Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require us to increase our allowance for loan losses. Increases in nonperforming loans have a significant impact on our allowance for loan losses.
Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require us to increase our allowance for credit losses. Increases in nonperforming loans have a significant impact on our allowance for loan losses.
The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and judgment and requires us to make significant estimates of current and expected future credit risks and future trends, any or all of which may undergo subsequent material changes.
The determination of the appropriate level of the allowance for credit losses inherently involves a high degree of subjectivity and judgment and requires us to make significant estimates of current and expected future credit risks and future trends, any or all of which may undergo subsequent material changes.
The number of experienced banking professionals in our markets may not be the same as in certain other markets. We may be subject to increased litigation which could result in legal liability and damage to our reputation. We may be named from time to time as a defendant in litigation relating to its business and activities.
The number of experienced banking professionals in our markets may not be the same as in certain other markets. We may be subject to increased litigation which could result in legal liability and damage to our reputation. We may be named from time to time as a defendant in litigation relating to our business and activities.
These matters also could result in adverse judgments, settlements, fines, penalties, injunctions or other relief. 27 In addition, in recent years, a number of judicial decisions have upheld the right of borrowers to sue lending institutions on the basis of various evolving legal theories, collectively termed “lender liability.” Generally, lender liability is founded on the premise that a lender has either violated a duty, whether implied or contractual, of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or shareholders.
These matters also could result in adverse judgments, settlements, fines, penalties, injunctions or other relief. 30 In addition, in recent years, a number of judicial decisions have upheld the right of borrowers to sue lending institutions on the basis of various evolving legal theories, collectively termed “lender liability.” Generally, lender liability is founded on the premise that a lender has either violated a duty, whether implied or contractual, of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or shareholders.
In addition, bank regulatory agencies periodically review our allowance for loan losses and may require us to increase the provision for loan losses or to recognize further loan charge-offs, based on judgments that differ from those of management.
In addition, bank regulatory agencies periodically review our allowance for credit losses and may require us to increase the provision for credit losses or to recognize further loan charge-offs, based on judgments that differ from those of management.
We also rely on vendors to provide part of our services we deliver to customers. While we have a vendor management program policy in place and believe we have selected our vendors appropriately, we cannot directly control their employees or their operating environments.
We also rely on vendors to provide part of the services we deliver to customers. While we have a vendor management program policy in place and believe we have selected our vendors appropriately, we cannot directly control their employees or their operating environments.
The amount that we, as a mortgagee, may realize after a default is dependent upon factors outside of our control, including: • general or local economic conditions; • environmental clean-up liabilities; • neighborhood values; • interest rates; 17 • real estate tax rates; • operating expenses of the foreclosed properties; • supply of and demand for rental units or properties; • ability to obtain and maintain adequate occupancy of the properties; • zoning laws; • governmental rules, regulations and fiscal policies; and • extreme weather conditions or other natural or man-made disasters.
The amount that we, as a mortgagee, may realize after a default is dependent upon factors outside of our control, including: • general or local economic conditions; • environmental clean-up liabilities; • neighborhood values; • interest rates; 19 • real estate tax rates; • operating expenses of the foreclosed properties; • supply of and demand for rental units or properties; • ability to obtain and maintain adequate occupancy of the properties; • zoning laws; • governmental rules, regulations and fiscal policies; and • extreme weather conditions or other natural or man-made disasters.
If loan charge-offs in future periods exceed our allowance for loan losses, we will need to record additional provisions to increase our allowance for loan losses. Furthermore, growth in our loan portfolio would generally lead to an increase in the provision for loan losses.
If loan charge-offs in future periods exceed our allowance for credit losses, we will need to record additional provisions to increase our allowance for credit losses. Furthermore, growth in our loan portfolio would generally lead to an increase in the provision for credit losses.
Accordingly, we may lose customers seeking new technology-driven products and services to the extent we are unable to compete effectively. 21 A failure or a breach of our operational systems or infrastructure, or those of third party service providers, could disrupt our business, result in the unauthorized disclosure of confidential or proprietary information, damage our reputation and cause financial losses.
Accordingly, we may lose customers seeking new technology-driven products and services to the extent we are unable to compete effectively. 23 A failure or a breach of our operational systems or infrastructure, or those of third party service providers, could disrupt our business, result in the unauthorized disclosure of confidential or proprietary information, damage our reputation and cause financial losses.
While these procedures are designed to provide us with the information needed to implement policy adjustments where necessary, and to take proactive corrective actions, there can be no assurance that such measures will be effective in avoiding undue credit risk. 19 We are subject to environmental liability risk associated with our lending activities.
While these procedures are designed to provide us with the information needed to implement policy adjustments where necessary, and to take proactive corrective actions, there can be no assurance that such measures will be effective in avoiding undue credit risk. 21 We are subject to environmental liability risk associated with our lending activities.
A breach or failure of a chosen vendor could have a material adverse impact on our operating environment. Replacing a chosen vendor could also result in a significant delay and expense. Internet Risk. Our services and technology solutions rely on the internet more and more. Computers connected to the internet are vulnerable to many types of threats by cyber criminals.
A breach or failure of a chosen vendor could have a material adverse impact on our operating environment. Replacing a chosen vendor could also result in a significant delay and expense. Internet Risk. Our services and technology solutions rely on internet communications. Computers connected to the internet are vulnerable to many types of threats by cyber criminals.
As discussed above, rates are fluctuating, and due to a number of factors including changes in monetary policies of the Federal Reserve, will likely continue to fluctuate. 24 External and Market-Related Risks Changes in general business, economic and political conditions, especially in our market area, could adversely affect our growth and earnings.
As discussed above, rates are fluctuating, and due to a number of factors including changes in monetary policies of the Federal Reserve, will likely continue to fluctuate. 27 External and Market-Related Risks Changes in general business, economic and political conditions, especially in our market area, could adversely affect our growth and earnings.
As described below these competitors include banks, other financial institution and non-banks offering services and products previously only provided by banks. 23 The decreased soundness of other financial institutions could adversely affect us. Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions.
As described below these competitors include banks, other financial institution and non-banks offering services and products previously only provided by banks. 26 The decreased soundness of other financial institutions could adversely affect us. Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions.
Litigation may include claims for substantial compensatory or punitive damages or claims for indeterminate amounts of damages. We are also involved from time to time in other reviews, investigations and proceedings (both formal and informal) by governmental and self- regulatory agencies regarding its business.
Litigation may include claims for substantial compensatory or punitive damages or claims for indeterminate amounts of damages. We are also involved from time to time in other reviews, investigations and proceedings (both formal and informal) by governmental and self- regulatory agencies regarding our business.
A failure to maintain adequate lidquidity could have a material adverse effect on our business, financial condition and results of operation. Operational Risks New lines of business, products, product enhancements or services may subject us to additional risks. General.
A failure to maintain adequate liquidity could have a material adverse effect on our business, financial condition and results of operation. Operational Risks New lines of business, products, product enhancements or services may subject us to additional risks. General.
The earnings of the Bank, and therefore the earnings of the Company, are affected by changes in federal and state legislation and actions of various regulatory authorities. 25 Risks Associated with Our Common Stock The market price for the Company ’ s common stock price may be volatile.
The earnings of the Bank, and therefore the earnings of the Company, are affected by changes in federal and state legislation and actions of various regulatory authorities. 28 Risks Associated with Our Common Stock The market price for the Company ’ s common stock price may be volatile.
Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan losses.
Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for credit losses.
In order to keep deposits required for funding purposes, it may be necessary to raise deposit rates without commensurate increases in asset pricing in the short term. In recent years it has been the policy of the Federal Reserve to maintain interest rates at historically low levels through its targeted federal funds rate and the purchase of mortgage-backed securities.
In order to keep deposits required for funding purposes, it may be necessary to raise deposit rates without commensurate increases in asset pricing in the short term. Prior to 2022, it has been the policy of the Federal Reserve to maintain interest rates at historically low levels through its targeted federal funds rate and the purchase of mortgage-backed securities.
In addition, our operations rely on the secure processing, storage and transmission of confidential, proprietary and other information on our computer systems and networks.
In addition, our operations rely on the secure processing, storage and transmission of confidential, proprietary and other information on our computer systems, networks. and cloud infrastructure.
The level of the allowance reflects management’s evaluation of, among other factors, the status of specific impaired loans, trends in historical loss experience, delinquency trends, credit concentrations and economic conditions within our market area.
The level of the allowance reflects management’s evaluation of, among other factors, the status of specific individually evaluated loans, trends in historical loss experience, delinquency trends, credit concentrations and economic conditions within our market area.
Generally, increases in our allowance for loan losses will result in a decrease in net income and shareholders’ equity, and may have a material adverse effect on our financial condition, results of operations and cash flows. Material additions to our allowance could also materially decrease our net income and, possibly, capital, and may have an adverse effect on our business.
Generally, increases in our allowance for credit losses will result in a decrease in net income and stockholders’ equity, and may have a material adverse effect on our financial condition, results of operations and cash flows. Material additions to our allowance could also materially decrease our net income and, possibly, capital, and may have an adverse effect on our business.
An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity.
Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity.
Additionally, the emergence of widespread health emergencies or pandemics, such as coronavirus (“COVID-19”), could lead to quarantines, business shutdowns, increases in unemployment, labor shortages, disruptions to supply chains, and overall economic instability.
The re-emergence of widespread health emergencies or pandemics, such as coronavirus, could lead to quarantines, business shutdowns, increases in unemployment, labor shortages, disruptions to supply chains, and overall economic instability.
In 2021, the Company began development of a proprietary BaaS software solution, Avenu TM , which provides an embedded banking solution that connects our partners (fintechs, application developers, money movers, and entrepreneurs) directly and seamlessly to our Software as a Service (SaaS) solution. Developing and deploying a software program may add additional risk.
In 2021, the Company began development of a proprietary BaaS software solution, Avenu, which provides an embedded banking solution that connects our partners (fintechs, application developers, money movers, and entrepreneurs) directly and seamlessly to our Software as a Service (SaaS) solution. Developing and deploying a software program may add additional risk, including cybersecurity, compliance, financial, and reputational concerns.
In addition, there are continuing concerns related to, among other things, the level of U.S. government debt and fiscal actions that may be taken to address that debt, a potential resurgence of economic and political tensions with China or an escalation of tensions between Russia and Ukraine, all of which may have a destabilizing effect on financial markets and economic activity.
In addition, there are continuing concerns related to, among other things, the level of U.S. government debt and fiscal actions that may be taken to address that debt, a potential resurgence of economic and political tensions with or between other countries may have a destabilizing effect on financial markets and economic activity.
These increased costs could require us to divert a significant amount of money that we could otherwise use to expand our business and achieve our strategic objectives.
These increased costs could require us to divert a significant amount of money that we could otherwise use to expand our business and achieve our strategic objectives. Item 1B. Unresolved Staff Comments None.
Adverse changes in the economy may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings.
Adverse changes in the economy may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings. Inflationary pressures and rising prices may affect our results of operations and financial condition.
There can be no assurance that we will be successful in continuing our organic, or internal, growth strategy. Our ability to identify appropriate markets for expansion, recruit and retain qualified personnel, and fund growth at reasonable cost, depends upon prevailing economic conditions, maintenance of sufficient capital, competitive factors, changes in banking laws, and other factors.
Our ability to identify appropriate markets for expansion, recruit and retain qualified personnel, and fund growth at reasonable cost, depends upon prevailing economic conditions, maintenance of sufficient capital, competitive factors, changes in banking laws, and other factors.
We have insurance against some cyber risks and attacks; nonetheless, our insurance coverage may not be sufficient to offset the impact of a material loss event (including if our insurer denies coverage as to any particular claim in the future), and such insurance may increase in cost or cease to be available on commercially reasonable terms, or at all, in the future.
We have insurance against some cyber risks and attacks; nonetheless, our insurance coverage may not be sufficient to offset the impact of a material loss event (including if our insurer denies coverage as to any particular claim in the future), and such insurance may increase in cost or cease to be available on commercially reasonable terms, or at all, in the future. 25 We rely on third party service providers to provide key components of our business infrastructure, and a failure of these parties to perform for any reason could disrupt our operations.
As of December 31, 2022, we had $435.8 million in unfunded credit commitments to our customers.
As of December 31, 2023, we had $359.4 million in unfunded credit commitments to our customers.
Our business depends on the successful and uninterrupted functioning of our information technology and telecommunications systems and third-party servicers. The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations.
The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations.
We maintain an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense, that represents management’s estimable and observable losses within the existing portfolio of loans.
We can give no assurance that our allowance for credit losses is or will be sufficient to absorb actual loan losses. We maintain an allowance for credit losses on loans, which is a reserve established through a provision for credit losses charged to expense, that represents management’s estimable and observable losses within the existing portfolio of loans.
As of that same date, we had approximately $393.8 million of construction real estate loans and $394.4 million of residential real estate loans, which represented 24.6% and 24.7% respectively.
As of that same date, we had approximately $429.6 million of construction real estate loans and $474.6 million of residential real estate loans, which represented 24.9% and 27.5% respectively.
If we are unable to adjust both to increased competition for traditional banking services and changing customer needs and preferences, our financial performance and your investment in our capital stock could be adversely affected. Additional required capital may not be available. We are required by federal regulatory authorities to maintain adequate levels of capital to support our operations.
If we are unable to adjust both to increased competition for traditional banking services and changing customer needs and preferences, our financial performance and your investment in our capital stock could be adversely affected.
In addition, we may elect to raise additional capital to support our business or to finance acquisitions, if any, or we may otherwise elect or be required to raise additional capital.
We are required by federal regulatory authorities to maintain adequate levels of capital to support our operations. In addition, we may elect to raise additional capital to support our business or to finance acquisitions, if any, or we may otherwise elect or be required to raise additional capital.
Continuing deterioration in economic conditions, including inflation, a possible recession, higher interest rates, unresolved or new adverse effects of the COVID-19 pandemic, and unanticipated problem loans, may necessitate an increase in our allowance for loan losses.
Continuing deterioration in economic conditions, including inflation, a possible recession, higher interest rates, unresolved or new adverse effects of the COVID-19 pandemic, and unanticipated problem loans, may necessitate an increase in our allowance for credit losses. In addition, bank regulatory authorities may require an increase or future charge-offs based on their judgments which may differ from ours.
The Federal Reserve also announced its intention to take other actions to mitigate growing signs of inflation. As the Federal Reserve continues to increase the targeted Fed Funds rate, overall interest rates have been impacted.
In an attempt to help the overall economy and in response to inflationary pressures, throughout 2022 and 2023 the Federal Reserve increased its targeted Fed Funds rate. The Federal Reserve also announced its intention to take other actions to mitigate growing signs of inflation. As the Federal Reserve continues its mission, overall interest rates have been impacted.
Our financial performance will be negatively affected if we are unable to execute our growth strategy. Our stated growth strategy is to grow organically and supplement that growth with select acquisitions, if available. Our success depends primarily on generating loans and deposits of acceptable risk and expense.
Our stated growth strategy is to grow organically and supplement that growth with select acquisitions, if available. Our success depends primarily on generating loans and deposits of acceptable risk and expense. There can be no assurance that we will be successful in continuing our organic, or internal, growth strategy.
Interest rates are sensitive to many factors that are beyond our control, including general economic conditions, competition and policies of various governmental and regulatory agencies and, in particular, the policies of the Federal Reserve. In an attempt to help the overall economy and in response to inflationary pressures, throughout 2022 the Federal Reserve increased its targetd Fed Funds rate.
Interest rates are sensitive to many factors that are beyond our control, including general economic conditions, competition and policies of various governmental and regulatory agencies and, in particular, the policies of the Federal Reserve.
As of December 31, 2022, we had approximately $228.4 million of owner-occupied and $472.4 million of investment commercial real estate loans outstanding, which represented approximately 14.3% and 29.5%, respectively, of our loan portfolio as of December 31, 2022.
As of December 31, 2023, we had approximately $282.1 million of owner-occupied and $461.8 million of investment commercial real estate loans outstanding, which represented approximately 16.3% and 26.7%, respectively, of our loan portfolio as of December 31, 2023.
Like all financial institutions, we are exposed to the risk that our borrowers may not repay their loans according to their terms, and the collateral securing the payment of these loans may be insufficient to fully compensate us for the outstanding balance of the loan plus the costs to dispose of the collateral.
Like all financial institutions, we are exposed to the risk that our borrowers may not repay their loans according to their terms, and the collateral securing the payment of these loans may be insufficient to fully compensate us for the outstanding balance of the loan plus the costs to dispose of the collateral. 20 We maintain an allowance for credit losses ("ACL"), which includes the allowance for credit losses on loans, at a level we believe is adequate to absorb expected losses in our loan portfolio as of the corresponding balance sheet date.
In recent years commercial real estate markets both nationally and locally have been adversely affected by the COVID-19 pandemic. Remote employee work opportunities during the pandemic have impacted, and may continue to impact, the occupancy of commercial properties. Weakness in our commercial real estate market could result in an increased delinquency rate and losses from these loans.
Remote employee work opportunities during the pandemic have impacted, and may continue to impact, the occupancy of commercial properties. Weakness in our commercial real estate market could result in an increased delinquency rate and losses from these loans. We believe that the resilience of our market and borrowers provides an ability to adjust to and withstand such risks.
We will likely face an increasing number of attempted cyber-attacks as we expand our mobile and other internet-based products and services, as well as our usage of mobile and cloud technologies and as we provide more of these services to a greater number of banking customers. 22 The methods and techniques employed by malicious actors change frequently, are increasingly sophisticated and often are not fully recognized or understood until after they have occurred, and some techniques could occur and persist for an extended period of time before being detected and remediated.
The methods and techniques employed by malicious actors change frequently, are increasingly sophisticated and often are not fully recognized or understood until after they have occurred, and some techniques could occur and persist for an extended period of time before being detected and remediated.
Higher interest payment obligations could also advesely affect certain borrowers, particularly our floating-rate borrowers. Substantial and prolonged increases in market interest rates could have a material adverse effect on our financial condition and results of operation. Our business may be adversely affected by the transition from the London InterBank Offered Rate (LIBOR) as a reference rate..
Higher interest payment obligations could also adversely affect certain borrowers, particularly our floating-rate borrowers. Substantial and prolonged increases in market interest rates could have a material adverse effect on our financial condition and results of operation. 22 Liquidity Risk Liquidity risk could impair our ability to fund operations, meet our obligations as they become due, and jeopardize our financial condition.
Strategic Risks Strong competition within our market area could reduce our profits and slow growth. We face strong competition in making loans, attracting deposits and hiring and retaining experienced employees from various competitors, many of which are larger and have greater financial resources than the Company.
We face strong competition in making loans, attracting deposits and hiring and retaining experienced employees from various competitors, many of which are larger and have greater financial resources than the Company. Price competition for loans and deposits may result in our charging lower interest rates on loans and paying higher interest rates on deposits, thereby reducing our net interest income.
While we have established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on our business, operations and financial condition. If we do not adjust to rapid changes in the financial services industry, our financial performance may suffer.
While we have established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on our business, operations and financial condition. Strategic Risks Strong competition within our market area could reduce our profits and slow growth.
In addition, bank regulatory authorities may require an increase or future charge-offs based on their judgments which may differ from ours. 18 We may be required to increase our provisions for credit losses and to charge off loans in the future, which increases and charges could materially adversely affect us.
We may be required to increase our provisions for credit losses and to charge off loans in the future, which increases and charges could materially adversely affect us. There is no precise method of predicting the timing of loan losses.
We rely on third party service providers to provide key components of our business infrastructure, and a failure of these parties to perform for any reason could disrupt our operations. Third parties provide key components of our business infrastructure such as data processing, internet connections, network access, core application processing, statement production and account analysis.
Third parties provide key components of our business infrastructure such as data processing, internet connections, network access, cloud computing access, core application processing, statement production and account analysis. Our business depends on the successful and uninterrupted functioning of our information technology and telecommunications systems and third-party servicers.
Price competition for loans and deposits may result in our charging lower interest rates on loans and paying higher interest rates on deposits, thereby reducing our net interest income. Price competition also may limit our ability to originate loans and adversely affect our growth and profitability. Competition makes it more difficult and costly to attract and retain qualified employees.
Price competition also may limit our ability to originate loans and adversely affect our growth and profitability. Competition makes it more difficult and costly to attract and retain qualified employees. Our financial performance will be negatively affected if we are unable to execute our growth strategy.
Certain expenditures associated with the ownership of real estate, principally real estate taxes and maintenance costs, may also adversely affect our operating expenses. Commercial and industrial loans may expose us to greater financial and credit risk than other loans.
Certain expenditures associated with the ownership of real estate, principally real estate taxes and maintenance costs, may also adversely affect our operating expenses. In recent years commercial real estate markets both nationally and locally have been adversely affected by the COVID-19 pandemic.
Commercial and industrial loans can involve a greater degree of financial and credit risk than other loans, including less collateral at liquidation. Any significant failure to pay on time by these customers would hurt our earnings.
However, increased losses from this portfolio could have an adverse effect on our business, financial condition and results of operations. Commercial and industrial loans may expose us to greater financial and credit risk than other loans. Commercial and industrial loans can involve a greater degree of financial and credit risk than other loans, including less collateral at liquidation.
Removed
We believe that the resilience of our market and borrowers provides an ability to adjust to and withstand such risks. However, increased losses from this portfolio could have an adverse effect on our business, financial condition and results of operations.
Added
Any significant failure to pay on time by these customers would hurt our earnings.
Removed
We maintain an allowance for credit losses ("ACL"), which includes the allowance for loan losses ("ALLL"), at a level we believe is adequate to absorb expected losses in our loan portfolio as of the corresponding balance sheet date.
Added
Any significant environmental liabilities could cause an adverse effect on our business, financial condition and results of operations. The implementation of the Current Expected Credit Loss accounting standard could require us to increase our allowance and future provisions for credit losses and may have a material adverse effect on our financial condition and results of operations .
Removed
There is no precise method of predicting the timing of loan losses. We can give no assurance that our allowance for credit losses is or will be sufficient to absorb actual loan losses.
Added
Effective January 1, 2023, we were required to adopt the Financial Accounting Standards Board (the “FASB”) Accounting Standards Update 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments , commonly referred to as “CECL.” Under CECL the allowance for credit losses methodology has been changed from an incurred loss concept to an expected loss concept, which is more dependent on future economic forecasts, assumptions and models than previous accounting standards and could result in increases in, and add volatility to, our allowance for credit losses and future provisions for credit losses.
Removed
The London Interbank Offered Rate (LIBOR) has been used extensively in the United States and globally as a reference rate for various commercial and financial contracts, including adjustable rate mortgages, corporate debt, interest rate swaps and other derivatives. LIBOR is set based on interest rate information reported by certain banks for short-term loans.
Added
These forecasts, assumptions, and models are inherently uncertain and are based upon management’s reasonable judgments in light of currently available information. As a result, our allowance for credit losses may not be adequate to absorb actual credit losses, and, if not adequate, could materially and adversely affect our financial condition and results of operations.
Removed
In 2017, the United Kingdom's Financial Conduct Authority announced that it intended to stop persuading or compelling banks to submit LIBOR rates after 2021. In March 2022, the U.S.
Added
We are subject to environmental liability risk associated with our lending activities. In the course of our business, we may foreclose on and take title to real estate. Although we exercise prudent due diligence when making loans, we could be subject to environmental liabilities with respect to these properties.
Removed
Government enacted the Adjustable Interest Rate (LIBOR) Act to provide a transition for legacy contracts that either lack or contain insufficient provisions addressing the cessation of LIBOR by providing for the transition to the applicable reference rate identified by the Federal Reserve on June 30, 2023 (the "LIBOR replacement date").
Added
We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination or may be required to investigate or clean up hazardous or toxic substances or chemical releases at a property.
Removed
Effective in February 2023, the Federal Reserve adopted a final rule which establishes benchmark replacement rates to replace LIBOR on the LIBOR replacement date. The final rule identifies SOFR-based Federal Reserve selected benchmark replacements for LIBOR contracts that will not mature prior to the LIBOR replacement date and do not contain clear and practicable benchmark replacements.
Added
The costs associated with investigation or remediation activities could be substantial. In addition, if we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property.
Removed
The Secured Oversight Financing Rate (SOFR) is different from LIBOR in that it is a backward-looking secured rate rather than a forward-looking unsecured rate. These differences could lead to a greater disconnect between our costs to raise funds for SOFR as compared to LIBOR. We have discontinued originating LIBOR-based financial instruments and are now originating loans based on SOFR.
Added
A “deep fake” incident, which involves synthetic media that is created using artificial intelligence to create realistic images, videos, or audio recordings of people that appear to be real but are not. This technology has the potential to be used for malicious purposes, such as spreading misinformation or impersonating individuals.
Removed
Until replacement rates are fully established and all agreements have been addressed, we will continue to have a number of loans, derivative contracts, and other financial instruments with attributes that are directly or indirectly dependent on LIBOR.
Added
We will likely face an increasing number of attempted cyber-attacks as we expand our mobile and other internet-based products and services, as well as our usage of mobile and cloud technologies and as we provide more of these services to a greater number of banking customers.
Removed
We are currently unable to assess the ultimate impact of the LIBOR transition. 20 Liquidity Risk Liquidity risk could impair our ability to fund operations, meet our obligations as they become due, and jeopardize our financial condition. Liquidity is essential to our business.
Added
Inflation began to rise sharply at the beginning of 2022 and remained at an elevated level through the present time. Small to medium-sized businesses may be impacted more during periods of high inflation as they are not able to leverage economies of scale to mitigate cost pressures compared to larger businesses.
Removed
Because we have a significant amount of real estate loans, decreases in real estate values could adversely affect the value of property used as collateral and our ability to sell the collateral upon foreclosure.
Added
Consequently, the ability of our business customers to repay their loans may deteriorate, and in some cases this deterioration may occur quickly, which would adversely impact our results of operations and financial condition.
Removed
If during a period of reduced real estate values we are required to liquidate the collateral securing a loan to satisfy the debt or to increase our allowance for loan losses, it could materially reduce our profitability and adversely affect our financial condition.
Added
Furthermore, a prolonged period of inflation could cause wages and other costs to the Company to increase, which could adversely affect our results of operations and financial condition. If we do not adjust to rapid changes in the financial services industry, our financial performance may suffer.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeFairfax, VA 22030 Owned 2010 $7,481 Other Properties: Herndon Branch 727 Elden Street Leased 2004 — Herndon, VA 20170 Operations Center 22980 Shaw Road Leased 2021 — Sterling, VA, 20166 McLean Branch 1354 Old Chain Bridge Road Owned 2014 1,386 McLean, VA 22101 Clarendon Branch 1000 N. Highland Street Owned 2009 562 Arlington, VA 22201 Leesburg Branch 307 E.
Biggest changeFairfax, VA 22030 Owned 2010 $7,260 Other Properties: Herndon Branch 727 Elden Street Leased 2004 — Herndon, VA 20170 Operations Center 22980 Shaw Road Leased 2021 — Sterling, VA, 20166 McLean Branch 1354 Old Chain Bridge Road Owned 2014 1,320 McLean, VA 22101 Clarendon Branch 1000 N. Highland Street Owned 2009 513 Arlington, VA 22201 Leesburg Branch 307 E.
Market Street Owned 2017 2,357 Leesburg, VA 20176 Washington D.C. Branch 1130 Connecticut Avenue, N.W. Leased 2019 — Washington , D.C. 20036 We believe that current facilities are adequate to meet our present and foreseeable needs, subject to possible future expansion.
Market Street Owned 2017 2,273 Leesburg, VA 20176 Washington D.C. Branch 1130 Connecticut Avenue, N.W. Leased 2019 — Washington , D.C. 20036 We believe that current facilities are adequate to meet our present and foreseeable needs, subject to possible future expansion.
See Note 7 of Notes to the December 31, 2022, Consolidated Financial Statements, for additional disclosures related to the Company’s properties.
See Note 7 of Notes to the December 31, 2023, Consolidated Financial Statements, for additional disclosures related to the Company’s properties.
Item 2. Properties As of December 31, 2022, the net book value of our office properties was $11.8 million, and the net book value of our furniture, fixtures and equipment was $2.3 million. The following table sets forth information regarding our offices.
Item 2. Properties As of December 31, 2023, the net book value of our office properties was $11.4 million, and the net book value of our furniture, fixtures and equipment was $2.2 million. The following table sets forth information regarding our offices.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe new stock repurchase program replaces the Company’s previous program. During the year ended December 31, 2022, the Company repurchased 222,652 shares under this plan. Collectively, the Company repurchased 284,693 shares of common stock during the fiscal year December 31, 2022. The Company did not repurchase common stock during the fourth quarter of 2022.
Biggest changeThe new stock repurchase program replaces the Company’s previous program. During the year ended December 31, 2023, the Company repurchased 8,000 shares under this plan. The Company did not repurchase common stock during the fourth quarter of 2023.
As the Company is a financial holding company and does not engage directly in business activities of a material nature, its ability to pay dividends on our common stock will depend, in large part, upon the receipt of dividends from the Bank.
As the Company is a financial holding company and does not engage directly in business activities of a material nature, its ability to pay dividends on its common stock will depend, in large part, upon the receipt of dividends from the Bank.
Unregistered Sales and Issuer Repurchases of Common Stock Unregistered Sales of Common Stock Set forth below is information concerning sales of common stock by the Company during the past 3 years that were not registered under the Securities Act. 30 In 2019, the Board of Directors of the Bank and the Bank’s shareholders approved the MainStreet Bank 2019 Equity Incentive Plan (the “2019 Plan”), to provide officers, other selected employees and directors with additional incentives to promote growth and performance.
Unregistered Sales and Issuer Repurchases of Common Stock Unregistered Sales of Common Stock Set forth below is information concerning sales of common stock by the Company during the past 3 years that were not registered under the Securities Act. 33 In 2019, the Board of Directors of the Bank and the Bank’s shareholders approved the MainStreet Bank 2019 Equity Incentive Plan (the “2019 Plan”), to provide officers, other selected employees and directors with additional incentives to promote growth and performance.
On May 18, 2022, the Company announced that the Board of Directors had authorized a new plan to repurchase up to $7.5 million of the Company’s outstanding common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b-18 under the Securities Exchange Act of 1934.
Repurchases of Common Stock On May 18, 2022, the Company announced that the Board of Directors had authorized a plan to repurchase up to $7.5 million of the Company’s outstanding common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b-18 under the Securities Exchange Act of 1934.
(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 October 1, 2022 - October 31, 2022 — $ — — $ — November 1, 2022 - November 30, 2022 — $ — — $ — December 1, 2022 - December 31, 2022 — $ — — $ — Total — — Preferred Stock and Depositary Shares On September 15, 2020, the Company closed its underwritten public offering of 1,000,000 depositary shares, each representing 1/40th of a share of 7.50% Series A Fixed-Rate Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (the “Series A Preferred Stock”).
(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 October 1, 2023 - October 31, 2023 — $ — — $ 4,506 November 1, 2023 - November 30, 2023 — $ — — $ 4,506 December 1, 2023 - December 31, 2023 — $ — — $ 4,506 Total — — $ 4,506 Preferred Stock and Depositary Shares On September 15, 2020, the Company closed its underwritten public offering of 1,000,000 depositary shares, each representing 1/40th of a share of 7.50% Series A Fixed-Rate Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (the “Series A Preferred Stock”).
During the fiscal year ended December 31, 2022, the Company declared and paid four cash dividends. Holders of the common stock are subject to priority dividend rights of any holders of preferred stock then outstanding. There were 28,750 shares of preferred stock outstanding at December 31, 2022.
During the fiscal year ended December 31, 2023, the Company declared and paid four cash dividends. Holders of the common stock are subject to priority dividend rights of any holders of preferred stock then outstanding. There were 28,750 shares of preferred stock outstanding at December 31, 2023.
Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock Our common stock is traded on the Nasdaq Capital Market under the symbol “MNSB.” At December 31, 2022, the Company had approximately 240 shareholders of record.
Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock Our common stock is traded on the Nasdaq Capital Market under the symbol “MNSB.” At December 31, 2023, the Company had approximately 227 shareholders of record.
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 369,393 shares of restricted common stock have been awarded under the 2019 Plan.
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.
(2) Remaining shares available for issuance include 280,607 shares under the 2019 Equity Incentive Plan (“2019 Plan”). Shares remaining to be issued subsequent to December 31, 2022 under the 2019 Plan can be issued either as a restricted stock grant or upon exercise of stock options.
(2) Remaining shares available for issuance include 188,397 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.
Equity Compensation Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted- average exercise price of outstanding options, warrants and rights (1) Number of securities remaining and available for future issuance (2) Plans approved by shareholders 259,036 $ — 280,607 Plans not approved by shareholders — — — Total 259,036 $ — 280,607 (1) Restricted stock shares were not included when calculating the weighted-average exercise price.
Equity Compensation Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted- average exercise price of outstanding options, warrants and rights (1) Number of securities remaining and available for future issuance (2) Plans approved by shareholders 228,300 $ — 188,397 Plans not approved by shareholders — — — Total 228,300 $ — 188,397 (1) Restricted stock shares were not included when calculating the weighted-average exercise price.
A discussion of applicable regulatory restrictions on dividends by the Company and the Bank is provided in Item 1 (“Business”) under “Supervision, Regulation and Other Factors – Payment of Dividends.” Securities Authorized For Issuance Under Equity Compensation Plans The following table provides information concerning securities authorized for issuance under equity compensation plans, the weighted average price of such securities and the number of securities remaining available for future issuance, as of December 31, 2022.
A discussion of applicable regulatory restrictions on dividends by the Company and the Bank is provided in Item 1 (“Business”) under “Dividends, Capital Distributions, and Other Payments.” Securities Authorized For Issuance Under Equity Compensation Plans The following table provides information concerning securities authorized for issuance under equity compensation plans, the weighted average price of such securities and the number of securities remaining available for future issuance, as of December 31, 2023.
During 2022, 101,876 shares of restricted common stock vested from shares issued under both the 2019 Plan and the Bank's 2016 Equity Incentive Plan ("2016 Plan"). See Note 18 of Notes to Consolidated Financial Statements.
During 2023, (117,408) shares of restricted common stock vested from shares issued under both the 2019 Plan and the Bank's 2016 Equity Incentive Plan ("2016 Plan"). See Note 18 of Notes to Consolidated Financial Statements.
Removed
Repurchases of Common Stock On October 22, 2020, the Company announced that the Board of Directors had authorized a plan to repurchase up to $17.0 million of the Company’s outstanding common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b-18 under the Securities Exchange Act of 1934.
Removed
The new stock repurchase program replaces the Company’s previous program. During the year ended December 31, 2022 the Company repurchased 62,041 shares under this plan. The Company did not repurchase any common shares during the year ended December 31, 2021.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

113 edited+74 added−26 removed54 unchanged
Biggest changeHistorical results set forth below and elsewhere in this Form 10-K are not necessarily indicative of future performance At December 31, 2022 2021 (In thousands) Selected Financial Condition Data: Total assets $ 1,925,751 $ 1,647,402 Total cash and cash equivalents 130,600 93,199 Total investment securities 80,273 120,262 Loans receivable, net 1,579,950 1,341,760 Bank-owned life insurance 37,249 36,241 Premises and equipment, net 14,709 14,863 Computer software, net of amortization 9,149 2,493 Total deposits 1,512,889 1,411,963 FHLB advances and other borrowings 100,000 — Subordinated debt 72,245 29,294 Total stockholders’ equity 198,282 188,788 34 For the year ended December 31, 2022 2021 (In thousands) Selected Operating Data: Interest income $ 83,845 $ 64,199 Interest expense 13,836 10,663 Net interest income 70,009 53,536 Provision for (recovery of) loan losses 2,398 (1,175 ) Net interest income after provision for (recovery of) loan losses 67,611 54,711 Total non-interest income 4,834 6,110 Total non-interest expenses 39,057 32,865 Income before income taxes 33,388 27,956 Income tax expense 6,714 5,785 Net income 26,674 22,171 Less: Preferred stock dividends 2,156 2,156 Net income available to common shareholders $ 24,518 $ 20,015 Basic and diluted net income per common share $ 3.26 $ 2.65 At or For the Years Ended December 31, 2022 2021 Performance Ratios: Return on average assets 1.53 % 1.32 % Return on average equity 13.98 % 12.38 % Interest rate spread 3.66 % 2.94 % Net interest margin (1) 4.19 % 3.33 % Efficiency ratio (2) 52.19 % 55.10 % Non-interest expense to average assets 2.24 % 1.95 % Average interest-earning assets to average interest-bearing liabilities 164.68 % 159.31 % Per share Data and Shares Outstanding Earnings per common share (basic and diluted) $ 3.26 $ 2.65 Book value per common share $ 22.98 $ 21.27 Dividends per common share $ 0.25 $ — Tangible book value per common share $ 21.75 $ 20.94 Market value per common share $ 27.49 $ 24.59 Weighted average common shares (basic and diluted) 7,529,382 7,559,310 Common shares outstanding at end of period 7,442,743 7,595,781 Capital Ratios (Bank) Common equity tier 1(CET1) capital to risk-weighted assets 15.47 % 15.23 % Total risk-based capital to risk-weighted assets 16.27 % 16.06 % Tier 1 capital to risk-weighted assets 15.47 % 15.23 % Tier 1 capital to average assets 15.05 % 12.90 % Asset Quality Ratios Allowance for loan losses as a percentage of total loans 0.88 % 0.86 % Allowance for loan losses as a percentage of non-performing assets N/A 15.09 Net charge-offs to average outstanding loans during the period 0.00 % 0.00 % Non-performing loans as a percentage of total loans 0.00 % 0.00 % Non-performing assets as a percentage of total assets 0.00 % 0.05 % Other Data: Common equity / total assets 8.88 % 9.80 % Total equity / total assets 10.30 % 11.46 % Average equity to average assets 10.94 % 10.63 % Number of offices 6 6 Number of full-time equivalent employees 168 138 (1) Non-GAAP; refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section “Non-GAAP Measures” of this Form 10-K.
Biggest changeHistorical results set forth below and elsewhere in this Form 10-K are not necessarily indicative of future performance At December 31, 2023 2022 (In thousands) Selected Financial Condition Data: Total assets $ 2,035,432 $ 1,925,751 Total cash and cash equivalents 114,513 130,600 Total investment securities 77,203 80,273 Loans receivable, net 1,705,137 1,579,950 Bank-owned life insurance 38,318 37,249 Premises and equipment, net 13,944 14,709 Computer software, net of amortization 14,657 9,149 Total deposits 1,686,127 1,512,889 FHLB advances — 100,000 Federal funds purchased 15,000 — Subordinated debt 72,642 72,245 Allowance for credit losses on off-balance sheet credit exposure 1,009 — Total stockholders’ equity 221,517 198,282 37 For the year ended December 31, 2023 2022 (In thousands) Selected Operating Data: Interest income $ 124,123 $ 83,845 Interest expense 48,176 13,836 Net interest income 75,947 70,009 Provision for credit losses 1,642 2,398 Net interest income after provision for credit losses 74,305 67,611 Total non-interest income 3,638 4,834 Total non-interest expenses 45,119 39,057 Income before income taxes 32,824 33,388 Income tax expense 6,239 6,714 Net income 26,585 26,674 Less: Preferred stock dividends 2,156 2,156 Net income available to common shareholders $ 24,429 $ 24,518 Basic and diluted earnings per common share $ 3.25 $ 3.26 At or For the Years Ended December 31, 2023 2022 Performance Ratios: Return on average assets 1.38 % 1.53 % Return on average equity 12.66 % 13.98 % Interest rate spread 2.95 % 3.66 % Net interest margin (1) 4.08 % 4.19 % Efficiency ratio (2) 56.69 % 52.19 % Non-interest expense to average assets 2.34 % 2.24 % Average interest-earning assets to average interest-bearing liabilities 143.43 % 164.68 % Per share Data and Shares Outstanding Earnings per common share (basic and diluted) $ 3.25 $ 3.26 Book value per common share $ 25.81 $ 22.98 Dividends per common share $ 0.40 $ 0.25 Tangible book value per common share $ 23.86 $ 21.75 Market value per common share $ 24.81 $ 27.49 Weighted average common shares (basic and diluted) 7,522,913 7,529,382 Common shares outstanding at end of period 7,527,415 7,442,743 Capital Ratios (Bank) Common equity tier 1(CET1) capital to risk-weighted assets 16.22 % 15.47 % Total risk-based capital to risk-weighted assets 17.18 % 16.27 % Tier 1 capital to risk-weighted assets 16.22 % 15.47 % Tier 1 capital to average assets 14.66 % 15.05 % Asset Quality Ratios Allowance for credit losses on loans as a percentage of total loans 0.96 % 0.88 % Allowance for credit losses on loans as a percentage of non-performing loans 16.44 N/A Net charge-offs to average outstanding loans during the period 0.03 % 0.00 % Non-performing loans as a percentage of total loans 0.06 % 0.00 % Non-performing assets as a percentage of total assets 0.05 % 0.00 % Other Data: Common equity / total assets 9.54 % 8.88 % Tangible equity / tangible assets 10.24 % 9.87 % Average tangible equity to average tangible assets 10.31 % 10.66 % Number of offices 6 6 Number of full-time equivalent employees 186 168 (1) Non-GAAP; refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section “Non-GAAP Measures” of this Form 10-K.
Because the Company has total consolidated assets of less than $3 billion and does not engage in activities that would trigger application of the federal regulatory capital rules, it is not at present subject to consolidated capital requirements under the such rules.
Because the Company has total consolidated assets of less than $3 billion and does not engage in activities that would trigger application of the federal regulatory capital rules, it is not at present subject to consolidated capital requirements under such rules.
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 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; • our ability to enter new markets successfully and capitalize on growth opportunities; • our ability to successfully integrate acquired 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 this market; • adequacy of our allowance for credit losses; • deterioration of our asset quality; • cyber threats, attacks or events • reliance on third parties for key services • 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 loan 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; and • a work stoppage, forced quarantine, or other interruption or the unavailability of key employees. 32 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.
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 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; • our ability to enter new markets successfully and capitalize on growth opportunities; • our ability to successfully integrate acquired 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 this market; • adequacy of our allowance for credit losses; • deterioration of our asset quality; • cyber threats, attacks or events • reliance on third parties for key services • 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; and • a work stoppage, forced quarantine, or other interruption or the unavailability of key employees. 35 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.
The Company is able to apply and claim a research and development tax credit for its associated work in developing a software platform. In addition, the Company has invested in projects that generate tax credits through the Low Income Housing Tax Credits ("LIHTC") program as well as NMTC projects.
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.
While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. 33 See Note 20, Fair Value Presentation, in Notes to Consolidated Financial Statements for a detailed discussion of determining fair value, including pricing validation processes.
While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. 36 See Note 20, Fair Value Presentation, in Notes to Consolidated Financial Statements for a detailed discussion of determining fair value, including pricing validation processes.
In addition to the Company’s financial performance and condition, liquidity may be impacted by the Company’s structure as a bank holding company that is a separate legal entity from the Bank. The Company requires cash for various operating needs that could include payment of dividends to its stockholder, the servicing of debt, and the payment of general corporate expenses.
In addition to the Company’s financial performance and condition, liquidity may be impacted by the Company’s structure as a bank holding company that is a separate legal entity from the Bank. The Company requires cash for various operating needs that could include payment of dividends to its stockholders, the servicing of debt, and the payment of general corporate expenses.
The accounting principles followed by the Company and the methods of applying these principles conform with accounting principles generally accepted in the United States of America and with general practices within the banking industry. The Company’s critical accounting policies relate to (1) the allowance for loan losses, (2) fair value of financial instruments, and (3) derivative financial instruments.
The accounting principles followed by the Company and the methods of applying these principles conform with accounting principles generally accepted in the United States of America and with general practices within the banking industry. 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.
Non-GAAP; refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section “Non-GAAP Measures” of this Form 10-K. 37 Rate/ Volume Analysis The following table presents the effects of changing rates and volumes on net interest income for the periods indicated.
Non-GAAP; refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section “Non-GAAP Measures” of this Form 10-K. 40 Rate/ Volume Analysis The following table presents the effects of changing rates and volumes on net interest income for the periods indicated.
The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. 49 The federal regulatory capital rules apply to all depository institutions as well as to bank holding companies with consolidated assets of $3 billion or more.
The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. 56 The federal regulatory capital rules apply to all depository institutions as well as to bank holding companies with consolidated assets of $3 billion or more.
The Basel III Capital Rules, a comprehensive capital framework for U.S. banking organizations, became effective for the Company and the Bank on January 1, 2015 (subject to a phase-in period for certain provisions). Under the Basel III rules, the Company must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios.
The 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 Bank’s interest rate swaps with loan customers and dealer counterparties are described more fully in Note 19 in the December 31, 2022, Consolidated Financial Statements. Selected Financial Data The following table sets forth summarized historical consolidated financial information for each of the periods indicated.
The Bank’s interest rate swaps with loan customers and dealer counterparties are described more fully in Note 19 in the December 31, 2023, Consolidated Financial Statements. Selected Financial Data The following table sets forth summarized historical consolidated financial information for each of the periods indicated.
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.
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 non-interest income or non-interest expense, as applicable.
Other short-term investments such as federal funds sold and maturing interest- bearing deposits with other banks, are additional sources of liquidity. 48 The liability portion of the balance sheet provides liquidity through various customers’ interest-bearing and noninterest-bearing deposit accounts and through FHLB and other borrowings.
Other short-term investments such as federal funds sold and maturing interest-bearing deposits with other banks, are additional sources of liquidity. 55 The liability portion of the balance sheet provides liquidity through various customers’ interest-bearing and noninterest-bearing deposit accounts and through FHLB and other borrowings.
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, 2022,and 2021 has been derived from the Company's audited consolidated financial statements for the years ended December 31, 2022, and 2021.
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.
Item 6. [Reserved] 31 Item 7. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations The purpose of this discussion is to focus on significant changes in the financial condition and results of operations of the Company during the years ended December 31, 2022 and 2021.
Item 6. [Reserved] Item 7. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations The purpose of this discussion is to focus on significant changes in the financial condition and results of operations of the Company during the years ended December 31, 2023 and 2022.
Our lending activities are principally directed to our market area consisting of the Washington, D.C. and Northern Virginia metropolitan areas. Loan Portfolio Maturities and Yields . The following table summarizes the scheduled repayments of our loan portfolio at December 31, 2022.
Our lending activities are principally directed to our market area consisting of the Washington, D.C. and Northern Virginia metropolitan areas. Loan Portfolio Maturities and Yields . The following table summarizes the scheduled repayments of our loan portfolio at December 31, 2023.
Brokered deposits, federal funds purchased, and other short-term borrowings are additional sources of liquidity and, basically, represent the Company’s incremental borrowing capacity. These sources of liquidity are used as necessary to fund asset growth and meet short-term liquidity needs.
Wholesale deposits, federal funds purchased, and other short-term borrowings are additional sources of liquidity and, basically, represent the Company’s incremental borrowing capacity. These sources of liquidity are used as necessary to fund asset growth and meet short-term liquidity needs.
Management’s periodic evaluation of the adequacy of the allowance is based on various factors, including, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss or loan pools, the fair value of the underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses.
Management’s periodic evaluation of the adequacy of the allowance is based on various factors, including, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan losses on loan pools, the fair value of the underlying collateral, current and future economic conditions and other qualitative and quantitative factors which could affect potential credit losses.
Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of Total capital, Common Equity Tier 1 capital, and Tier 1 capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined).
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).
The Company also utilizes brokered deposits as a funding source in addition to customer deposits. Scheduled payments, as well as prepayments, and maturities from portfolios of loans and investment securities also provide a stable source of funds.
The Company also utilizes wholesale deposits as a funding source in addition to customer deposits. Scheduled payments, as well as prepayments, and maturities from portfolios of loans and investment securities also provide a stable source of funds.
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, 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 Avenu division held $62.9 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 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.
Because of uncertainties associated with regional economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that management’s estimate of probable credit losses inherent in the loan portfolio and the related allowance may change materially in the near-term.
Because of uncertainties associated with regional economic conditions, collateral values, and future cash flows on individually evaluated loans, it is reasonably possible that management’s estimate of probable credit losses inherent in the loan portfolio and the related allowance may change materially in the near-term.
Management believes, as of December 31, 2022, the Company and the Bank meets all capital adequacy requirements to which it is subject. As of December 31, 2022 and 2021, the most recent notification from the Federal Reserve Bank of Richmond categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.
Management believes, as of December 31, 2023, the Bank meets all capital adequacy requirements to which it is subject. As of December 31, 2023 and 2022, the most recent notification from the Federal Reserve Bank of Richmond categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.
All amounts set forth are included in the Results of Operations for the Year Ended December 31, 2022 and 2021 for MainStreet Bancshares, Inc. unless indicated otherwise.
All amounts set forth are included in the Results of Operations for the Year Ended December 31, 2023 and 2022 for MainStreet Bancshares, Inc. unless indicated otherwise.
The following table sets forth the major components of net interest income and the related yields and rates for the year ended December 31, 2022, compared to the year ended December 31, 2021.
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.
Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions and negative trends may result in a payment default in the near future. 43 As a percentage of total assets, nonperforming assets were 0.00% at December 31, 2022, compared with 0.05% at December 31, 2021.
Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions and negative trends may result in a payment default in the near future. 50 As a percentage of total assets, nonperforming assets were 0.05% at December 31, 2023, compared with 0.00% at December 31, 2022.
We believe that we have enough sources of liquidity to satisfy our short and long-term liquidity needs as of December 31, 2022.
We believe that we have enough sources of liquidity to satisfy our short and long-term liquidity needs as of December 31, 2023.
The capital conservation buffer was phased in from 0.0% for 2015 to 2.50% by 2019. The capital conservation buffer for 2022 and 2021 is 2.50%.
The capital conservation buffer was phased in from 0.0% for 2015 to 2.50% by 2019. The capital conservation buffer for 2023 and 2022 is 2.50%.
The Bank’s actual regulatory capital amounts and ratios as of December 31, 2022 and 2021 are presented in the table below.
The Bank’s actual regulatory capital amounts and ratios as of December 31, 2023 and 2022 are presented in the table below.
Analysis of Results of Operations for the Year Ended December 31, 2022 Net Income The following table sets forth the principal components of net income (loss) for the Avenu division of MainStreet Bank for the periods indicated.
Avenu, a division of MainStreet Bank Analysis of Results of Operations for the Year Ended December 31, 2023 Net Income The following table sets forth the principal components of net income (loss) for the Avenu division of MainStreet Bank for the periods indicated.
(2) Efficiency ratio is calculated as non-interest expense as a percentage of net interest income and non-interest income. 35 Analysis of Results of Operations for the Years Ended December 31, 2022 and 2021 Net Income The following table sets forth the principal components of net income for the periods indicated.
(2) Efficiency ratio is calculated as non-interest expense as a percentage of net interest income and non-interest income. 38 Analysis of Results of Operations for the Years Ended December 31, 2023 and 2022 Net Income The following table sets forth the principal components of net income for the periods indicated.
Non-performing loans were $0 at December 31, 2021 and $21,000 at December 31, 2022. On September 22, 2022, the Company completed the sale of a loan note for a customer that had stopped making payments and declared bankruptcy.
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.
In determining the level of the allowance for loan losses, we consider past and current loss experience, evaluations of real estate collateral, current 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.
In determining the level of the allowance for credit and off-balance sheet losses, 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.
FHLB advances, other secured borrowings, federal funds purchased, and other short-term borrowed funds, as well as longer-term debt issued through the capital markets, all provide supplemental liquidity sources. The Company’s funding activities are monitored and governed through the Company’s asset/liability management process Deposits Total deposits increased by $100.9 million from December 31, 2021 to December 31, 2022.
FHLB advances, other secured borrowings, federal funds purchased, and other short-term borrowed funds, as well as longer-term debt issued through the capital markets, all provide supplemental liquidity sources. The Company’s funding activities are monitored and governed through the Company’s asset/liability management process Deposits Total deposits increased by $173.2 million from December 31, 2022 to December 31, 2023.
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 $228.7 million and $60.5 million for the twelve months ended December 31, 2022, and December 31, 2021, 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.
The following table sets forth the allowance for loan losses allocated by loan category and the percent of the allowance in each category to the total allocated allowance at the dates indicated.
The following table sets forth the allowance for credit losses on loans allocated by loan category and the percent of the allowance in each category to the total allocated allowance on credit losses for loans at the dates indicated.
Certificates of deposit due within one year of December 31, 2022, totaled $516.9 million of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds in the normal course of business, including other deposits and Federal Home Loan Bank advances.
Certificates of deposit due within one year of December 31, 2023, totaled $463.7 million of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds in the normal course of business, including other deposits and Federal Home Loan Bank advances.
As of December 31, 2022, the Company had no loans placed on nonaccrual status. See Note 1, Organization, Basis of Presentation, and Impact of Recently Issued Accounting Pronouncements and Note 5, Allowance for Loan 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.
As of December 31, 2023, the Company had $1.0 million in loans on nonaccrual status. 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.
As a result of tax regulation, the Company has included assessments in income tax expense for state tax liabilities during 2022. For the year ended December 31, 2022, the Bank had an effective tax rate of 20.1%, compared to effective federal tax rate of 20.7% for the year ended December 31, 2021.
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.
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 rate paid on interest bearing deposits increased to 1.14% during the year ended December 31, 2022, from 0.90% during the year ended December 31, 2021.
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 rate paid on interest bearing deposits increased to 3.61% during the year ended December 31, 2023, from 1.14% during the year ended December 31, 2022.
Derivative Financial Instruments: The Bank recognizes derivative financial instruments at fair value as either other assets or other liabilities in the consolidated balance sheet. The Bank’s derivative financial instruments include interest rate swaps with certain qualifying commercial loan customers and dealer counterparties.
Derivative Financial Instruments: The Bank recognizes derivative financial instruments at fair value as either other assets or other liabilities 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.
Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $33.5 million and $29.1 million for the twelve months ended December 31, 2022, and December 31, 2021, respectively.
Our cash flows are comprised of three primary classifications: 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.
The following table summarizes asset quality information at December 31, 2022, and December 31, 2021.
The following table summarizes asset quality information at December 31, 2023, and December 31, 2022.
The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.
The allowance for credit losses on loans allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.
At December 31, 2022 and 2021, we were permitted to borrow up to an aggregate total of $465.0 million and $414.0 million, respectively, from the Federal Home Loan Bank of Richmond. There were Federal Home Loan Bank borrowings outstanding of $100.0 million and $0 at December 31, 2022, and December 31, 2021, respectively.
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.
During the year ended December 31, 2021, there were $32,000 in charge-offs recorded and recoveries received of $27,000. 38 Non-Interest Income Our primary sources of non-interest income are service charges on deposit accounts, such as interchange fees and statement fees, income earned on bank owned life insurance, fees earned from executing interest rate swaps on commercial loans, and gains realized on the sale of the guaranteed portion of Small Business Administration (“SBA”) loans.
During the year ended December 31, 2022, there were no charge-offs recorded and recoveries received of $19,000. 41 Non-Interest Income Our primary sources of non-interest income are service charges on deposit accounts, such as interchange fees and statement fees, income earned on bank owned life insurance, fees earned from executing interest rate swaps on commercial loans, and gains realized on the sale of the guaranteed portion of Small Business Administration (“SBA”) loans.
Salaries and employee benefits expense increased by $4.5 million to $23.8 million for the year ended December 31, 2022 from $19.3 million for the year ended December 31, 2021 primarily as a result of increasing our personnel team members by 30 employees.
Salaries and employee benefits expense increased by $4.5 million to $28.3 million for the year ended December 31, 2023 from $23.8 million for the year ended December 31, 2022 primarily as a result of increasing our personnel team members by 18 employees.
The allowance is increased by a provision for loans losses which is charged to expense and reduced by full and partial charge-offs, net of recoveries. Changes in the allowance relating to impaired loans are charged or credited to the provision for loan losses.
The allowance is increased by a provision for credit losses on loans which is charged to expense and reduced by full and partial charge-offs, net of recoveries. Changes in the allowance relating to individually evaluated loans are charged or credited to the provision for credit losses on loans.
At December 31, 2022, the investment securities portfolio includes $62.6 million of investment securities available for sale and $17.6 million of investment securities held to maturity compared to $99.9 million of investment securities available for sale and $20.3 million of investment securities held to maturity at December 31, 2021.
At December 31, 2023, the investment securities portfolio includes $59.9 million of investment securities available for sale and $17.3 million of investment securities held to maturity compared to $62.6 million of investment securities available for sale and $17.6 million of investment securities held to maturity at December 31, 2022.
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 loan losses totaled $70.0 million for the year ended December 31, 2022, compared to $53.5 million for the year ended December 31, 2021.
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.
Establishing a trading portfolio would require specific authorization by the Board of Directors. The total investment securities portfolio, including both investment securities available for sale and investment securities held to maturity, was $80.3 million at December 31, 2022, a decrease of $40.0 million compared with December 31, 2021.
Establishing a trading portfolio would require specific authorization by the Board of Directors. The total investment securities portfolio, including both investment securities available for sale and investment securities held to maturity, was $77.2 million at December 31, 2023, a decrease of $3.1 million compared with December 31, 2022.
The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At December 31, 2022, cash and cash equivalents totaled $130.6 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $62.6 million at December 31, 2022.
The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At December 31, 2023, cash and cash equivalents totaled $114.5 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $59.9 million at December 31, 2023.
Certificates of deposit in amounts in excess of the FDIC insurance limit of $250,000 totaled approximately $331.3 million. The following table sets forth the maturity of these certificates as of December 31, 2022.
Certificates of deposit in amounts in excess of the FDIC insurance limit of $250,000 totaled approximately $99.9 million. The following table sets forth the maturity of these certificates as of December 31, 2023.
There were no net repayments from the Federal Home Loan Bank for year ended 2022. We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments.
There were repayments of $100.0 million to the Federal Home Loan Bank for year ended 2023. We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments.
For the year ended December 31, 2022, the Avenu division recorded a net loss of $433,000. As the Company develops the software and ramps up the resources needed to operate a new division, elevated levels of non-interest expenses were anticipated.
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.
For the year ended December 31, 2022, the yield on the taxable investment securities portfolio was 2.20% compared to 2.08% for the year ended December 31, 2021. For the year ended December 31, 2022, the yield on the tax-exempt investment securities portfolio was 3.48% compared to 3.42% for the year ended December 31, 2021.
For the year ended December 31, 2023, the yield on the taxable investment securities portfolio was 2.67% compared to 2.20% for the year ended December 31, 2022. For the year ended December 31, 2023, the yield on the tax-exempt investment securities portfolio was 3.57% compared to 3.48% for the year ended December 31, 2022.
Non-interest expense also includes operational expenses, such as occupancy and equipment expenses, professional fees, advertising expenses and other general and administrative expenses, including FDIC assessments, communications, travel, meals, training, supplies and postage.
The largest component of non-interest expense is salaries and employee benefits. Non-interest expense also includes operational expenses, such as occupancy and equipment expenses, professional fees, advertising expenses and other general and administrative expenses, including FDIC assessments, communications, travel, meals, training, supplies and postage.
Forward-Looking Statements This Annual Report on Form 10-K 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.
This discussion and analysis should be read in conjunction with the accompanying consolidated financial statements. 34 Forward-Looking Statements This Annual Report on Form 10-K 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.
At December 31, 2022 2021 (Dollars in thousands) Allowance for Loan Losses Percent of Allowance in Each Category to Total Allocated Allowance Percent of Loans in Each Category to Total Loans Allowance for Loan Losses Percent of Allowance in Each Category to Total Allocated Allowance Percent of Loans in Each Category to Total Loans Residential Real Estate: Single family $ 1,240 8.8 % 11.2 % $ 1,119 9.6 % 11.9 % Multifamily 906 6.4 % 13.5 % 551 4.7 % 10.1 % Farmland — — 0.0 % 2 0.0 % 0.1 % Commercial Real Estate: Owner occupied 2,102 14.9 % 14.3 % 1,859 15.9 % 12.7 % Non-owner occupied 5,057 35.8 % 29.5 % 3,830 32.7 % 26.6 % Construction and Land Development 3,347 23.7 % 24.6 % 2,697 23.1 % 24.8 % Commercial – Non Real Estate: Commercial and industrial 1,418 10.0 % 6.1 % 1,540 13.2 % 12.1 % Consumer – Non Real Estate: Unsecured — — 0.1 % 32 0.3 % 0.0 % Secured 44 0.4 % 0.7 % 67 0.6 % 1.7 % Total $ 14,114 100.0 % 100.0 % $ 11,697 100.0 % 100.0 % Funding Activities Deposits are the primary source of funds for lending and investing activities and their cost is the largest category of interest expense.
At December 31, 2023 2022 (Dollars in thousands) Allowance for Credit Losses - Loans Percent of Allowance in Each Category to Total Allocated Allowance Percent of Loans in Each Category to Total Loans Allowance for Loan Losses Percent of Allowance in Each Category to Total Allocated Allowance Percent of Loans in Each Category to Total Loans Residential Real Estate: Single family $ 1,510 9.1 % 11.8 % $ 1,240 8.8 % 11.2 % Multifamily 1,084 6.6 % 15.7 % 906 6.4 % 13.5 % Commercial Real Estate: Owner occupied 3,393 20.6 % 16.3 % 2,102 14.9 % 14.3 % Non-owner occupied 5,495 33.3 % 26.7 % 5,057 35.8 % 29.5 % Construction and Land Development 3,575 21.7 % 24.9 % 3,347 23.7 % 24.6 % Commercial – Non Real Estate: Commercial and industrial 1,435 8.7 % 4.4 % 1,418 10.0 % 6.1 % Consumer – Non Real Estate: Secured 14 0.1 % 0.2 % 44 0.4 % 0.8 % Total $ 16,506 100.0 % 100.0 % $ 14,114 100.0 % 100.0 % Funding Activities Deposits are the primary source of funds for lending and investing activities and their cost is the largest category of interest expense.
There were no sales of available-for-sale debt securities in 2022 or 2021. Net cash provided by financing activities was $232.6 million and used in financing activities was $14.2 million for the twelve months ended December 31, 2022 and 2021, respectively, which consisted primarily of increases in interest bearing deposits and FHLB advances for the twelve months ended December 31, 2022.
There were no sales of available-for-sale debt securities in 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.
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 425 - 450 basis points by the year end, which impacted yields obtained on new loans throughout the year.
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.
The amount of the allowance is based on management’s evaluation of the collectability of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, and economic conditions. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows.
The amount of the allowance is based on management’s evaluation of the collectability of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific individually evaluated loans, and current and future economic conditions. Allowances for individually evaluated loans are generally determined based on collateral values.
Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as other unobservable parameters. Any such valuation adjustments are applied consistently over time.
These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as other unobservable parameters. Any such valuation adjustments are applied consistently over time.
The allowance for loan losses is assessed on a monthly basis and provisions are made for loan losses as required in order to maintain the allowance.
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 allowance for loan losses is maintained at a level which, in management’s judgment, is adequate to absorb probable and estimable credit losses inherent in the loan portfolio.
Analysis and Determination of the Allowance for Credit Loss on Loans. The allowance for credit losses on loans is maintained at a level which, in management’s judgment, is adequate to absorb probable and estimable future credit losses in the loan portfolio.
There were $19,000 in net loan recoveries and $5,000 in net loan charge-offs during the years ended December 31, 2022 and December 31, 2021, respectively. 45 Allocation of Allowance for Loan Losses .
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. 52 Allocation of Allowance for Credit Losses on Loans .
An integral part of their examination process, the Federal Reserve Board will periodically review our allowance for loan losses, and as a result of such reviews, we may have to adjust our allowance for loan losses. 44 The following table sets forth activity in our allowance for loan losses for the periods indicated.
An integral part of their examination process, the Federal Reserve Board will periodically review our allowance for credit losses, and as a result of such reviews, we may have to adjust our allowance for credit losses.
The deposit service fees largely remained consistent for the year ended December 31, 2022, as compared to the same period in 2021. Non-Interest Expense Generally, non-interest expense is composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships and providing bank services. The largest component of non-interest expense is salaries and employee benefits.
The deposit service fees decreased $271,000 for the year ended December 31, 2023, as compared to the same period in 2022, due to a decrease in customer activity. Non-Interest Expense Generally, non-interest expense is composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships and providing bank services.
December 31, December 31, 2022 2021 (Dollars in thousands) Loans accruing past 90 days: Commercial and industrial $ 15 $ — Consumer non real estate - secured 6 — Total non-performing loans 21 — Other real estate owned — 775 Total non-performing assets $ 21 $ 775 Ratios: Total non-performing loans to gross loans receivable 0.00 % 0.00 % Total non-performing loans to total assets 0.00 % 0.00 % Total non-performing assets to total assets 0.00 % 0.05 % There was no interest income that would have been recorded for the years ended December 31, 2022 and 2021 had non-accruing loans been current according to their original terms.
December 31, December 31, 2023 2022 (Dollars in thousands) Non-accrual loans: Residential real estate Single family $ 851 $ — Commercial and industrial 149 — Total non-accrual loans 1,000 — Loans accruing past 90 days: Commercial and industrial — 15 Consumer non real estate - secured 4 6 Total non-performing loans 1,004 21 Total non-performing assets $ 1,004 $ 21 Ratios: Total non-performing loans to gross loans receivable 0.06 % 0.00 % Total non-performing loans to total assets 0.05 % 0.00 % Total non-accrual loans to gross loans receivable 0.05 % 0.00 % 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.
The Company’s ability to raise funding at competitive prices is affected by the rating agencies’ views of the Company’s credit quality, liquidity, capital and earnings. Management meets with the rating agencies on a routine basis to discuss the current outlook for the Company.
The Company’s ability to raise funding at competitive prices is affected by the rating agencies’ views of the Company’s credit quality, liquidity, capital and earnings. Management is rated by an independent rating agency annually and is provided with independent current outlook for the Company.
The following table presents, for the periods indicated, the major categories of non-interest income: For the Year Ended December 31, 2022 2021 % Change (In thousands) Non-interest income Deposit account service charges $ 2,420 $ 2,426 -0.25 % Bank owned life insurance income 1,008 900 12.00 % Loan swap fee income 619 83 645.78 % Net gain on called held-to-maturity securities 4 6 -33.33 % Net gain (loss) on sale of loans (168 ) 847 -119.83 % Other fee income 951 1,848 -48.54 % Total non-interest income $ 4,834 $ 6,110 -20.88 % Non-interest income decreased $1.3 million, or 20.9%, to $4.8 million for the year ended December 31, 2022 from $6.1 million for the year ended December 31, 2021.
The following table presents, for the periods indicated, the major categories of non-interest income: For the Year Ended December 31, 2023 2022 % Change (In thousands) Non-interest income Deposit account service charges $ 2,149 $ 2,420 -11.20 % Bank owned life insurance income 1,069 1,008 6.05 % Loan swap fee income — 619 -100.00 % Net gain on called held-to-maturity securities — 4 -100.00 % Net gain (loss) on sale of loans — (168 ) -100.00 % Other fee income 420 951 -55.84 % Total non-interest income $ 3,638 $ 4,834 -24.74 % 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 allowance for loan losses increased to $14.1 million at December 31, 2022 from $11.7 million at December 31, 2021 as a direct result of normal loan provisions in conjunction with loan growth throughout the year.
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.
Income Tax Expense Income tax expense increased $929,000, or 16.1%, to $6.7 million for the year ended December 31, 2022 from $5.8 million for the year ended December 31, 2021.
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 goal for the Avenu team is to deploy the platform in 2023. Comparison of Statements of Financial Condition at December 31, 2022 and at December 31, 2021 Total Assets Total assets increased $278.3 million, or 16.9%, to $1.9 billion at December 31, 2022 from $1.6 billion at December 31, 2021.
The Avenu team will deploy the platform in 2024. Comparison of Statements of Financial Condition at December 31, 2023 and at December 31, 2022 Total Assets Total assets increased $109.7 million, or 5.7%, to $2.0 billion at December 31, 2023 from $1.9 billion at December 31, 2022.
This increase was a result of higher rates paid on all outstanding deposits in conjunction with the increasing rate environment throughout the year. 36 The rate paid on FHLB borrowings for the year ended December 31, 2022 was 1.45% compared to the prior year when the bank did not have any FHLB borrowings outstanding.
This increase was a result of higher rates paid on all outstanding deposits in conjunction with the increasing rate environment throughout the year. 39 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 discussion supplements and provides information about the major components of the results of operations, financial condition, liquidity and capital resources of the Company. This discussion and analysis should be read in conjunction with the accompanying consolidated financial statements.
The following discussion supplements and provides information about the major components of the results of operations, financial condition, liquidity and capital resources of the Company.
All loans which are 30 or more days past due at the end of the month are reported to the Board of Directors.
A loan’s past due status is based on the contractual due date of the most delinquent payment due. All loans which are 30 or more days past due at the end of the month are reported to the Board of Directors.
Actual Capital Adequacy Purposes To Be Well Capitalized Under the Prompt Corrective Action Provision (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio As of December 31, 2022 Total capital (to risk-weighted assets) $ 286,572 16.27 % $ 140,929 ≥ 8.0% $ 176,161 ≥ 10.0% Common equity tier 1 capital (to risk-weighted assets) $ 272,458 15.47 % $ 79,272 ≥ 4.5% $ 114,504 ≥ 6.5% Tier 1 capital (to risk-weighted assets) $ 272,458 15.47 % $ 105,696 ≥ 6.0% $ 140,929 ≥ 8.0% Tier 1 capital (to average assets) $ 272,538 15.05 % $ 72,435 ≥ 4.0% $ 90,544 ≥ 5.0% As of December 31, 2021 Total capital (to risk-weighted assets) $ 227,359 16.06 % $ 113,249 ≥ 8.0% $ 141,562 ≥ 10.0% Common equity tier 1 capital (to risk-weighted assets) $ 215,662 15.23 % $ 63,703 ≥ 4.5% $ 92,015 ≥ 6.5% Tier 1 capital (to risk-weighted assets) $ 215,662 15.23 % $ 84,937 ≥ 6.0% $ 113,249 ≥ 8.0% Tier 1 capital (to average assets) $ 215,662 12.90 % $ 66,898 ≥ 4.0% $ 83,622 ≥ 5.0% Non-GAAP Measures In reporting the results of December 31, 2022, the Company has provided supplemental performance measures on an operating basis.
Actual Capital Adequacy Purposes To Be Well Capitalized Under the Prompt Corrective Action Provision (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio As of December 31, 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% As of December 31, 2022 Total capital (to risk-weighted assets) $ 286,572 16.27 % $ 140,929 ≥ 8.0% $ 176,161 ≥ 10.0% Common equity tier 1 capital (to risk-weighted assets) $ 272,458 15.47 % $ 79,272 ≥ 4.5% $ 114,504 ≥ 6.5% Tier 1 capital (to risk-weighted assets) $ 272,458 15.47 % $ 105,696 ≥ 6.0% $ 140,929 ≥ 8.0% Tier 1 capital (to average assets) $ 272,458 15.05 % $ 72,435 ≥ 4.0% $ 90,544 ≥ 5.0% Non-GAAP Measures In reporting the results of December 31, 2023, the Company has provided supplemental performance measures on an operating basis.
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. 50 The following table reconciles these non-GAAP measures from their respective GAAP basis measures for the years ended December 31, For the year ended December 31, (Dollars in thousands) 2022 2021 Net interest margin (FTE) Net interest income (GAAP) $ 70,009 $ 53,536 FTE adjustment on tax-exempt securities 281 282 Net interest income (FTE) (non-GAAP) 70,290 53,818 Average interest earning assets $ 1,676,649 1,605,783 Net interest margin (GAAP) 4.18 % 3.33 % Net interest margin (FTE) (non-GAAP) 4.19 % 3.35 % Stockholders equity, adjusted Total stockholders equity (GAAP) $ 198,282 $ 188,788 Less: preferred stock (27,263 ) (27,263 ) Total common stockholders equity (GAAP) 171,019 161,525 Less: intangible assets 9,149 2,493 Tangible common stockholders equity (non-GAAP) 161,870 159,032 Shares outstanding 7,442,743 7,595,781 Tangible book value per common share (non-GAAP) $ 21.75 $ 20.94 51
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. 57 The following table reconciles these non-GAAP measures from their respective GAAP basis measures for the years ended December 31, For the year ended December 31, (Dollars in thousands) 2023 2022 Net interest margin (FTE) Net interest income (GAAP) $ 75,947 $ 70,009 FTE adjustment on tax-exempt securities 283 281 Net interest income (FTE) (non-GAAP) 76,230 70,290 Average interest earning assets $ 1,869,644 1,676,649 Net interest margin (GAAP) 4.06 % 4.18 % Net interest margin (FTE) (non-GAAP) 4.08 % 4.19 % Stockholders' equity, adjusted Total stockholders' equity (GAAP) $ 221,517 $ 198,282 Less: preferred stock (27,263 ) (27,263 ) Total common stockholders' equity (GAAP) 194,254 171,019 Less: intangible assets 14,657 9,149 Tangible common stockholders' equity (non-GAAP) 179,597 161,870 Shares outstanding 7,527,415 7,442,743 Tangible book value per common share (non-GAAP) $ 23.86 $ 21.75 Yield on earning assets (FTE) Total interest income 124,123 83,845 FTE adjustment on tax-exempt securities 283 281 Total interest income (FTE) (non-GAAP) 124,406 84,126 Average interest earning assets 1,869,644 1,676,649 Yield on earning assets (GAAP) 6.64 % 5.00 % Yield on earning assets (FTE) (non-GAAP) 6.65 % 5.02 % Net interest spread (FTE) Yield on earning assets (GAAP) 6.64 % 5.00 % Yield on earning assets (FTE) (non-GAAP) 6.65 % 5.02 % Yield on interest-bearing liabilities 3.70 % 1.36 % Net interest spread (GAAP) 2.94 % 3.64 % Net interest spread (FTE) (non-GAAP) 2.95 % 3.66 % 58

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+2 added−2 removed14 unchanged
Biggest changeThese back-to-back loan swaps qualify as financial derivatives with fair values reported in “Other assets” and “Other liabilities” in the Consolidated Balance Sheet. We believe that our current interest rate exposure is manageable and does not indicate any significant exposure to interest rate changes. 53
Biggest changeThese back-to-back loan swaps qualify as financial derivatives with fair values reported in “Other assets” and “Other liabilities” in the Consolidated Statement of Financial Condition. We believe that our current interest rate exposure is manageable and does not indicate any significant exposure to interest rate changes. 60
(4) EVE Ratio represents EVE divided by the fair value of assets. 52 Market Interest Rate Shift The financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles in the United States of America which require the measurement of financial position and operating results in terms of historical dollars without considering changes in relative purchasing power of money over time due to inflation.
(4) EVE Ratio represents EVE divided by the fair value of assets. 59 Market Interest Rate Shift The financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles in the United States of America which require the measurement of financial position and operating results in terms of historical dollars without considering changes in relative purchasing power of money over time due to inflation.
However, this goal can be difficult to completely achieve in times of rapidly changing interest rates and is one of many factors considered in determining the Company’s interest rate positioning. The Company is asset sensitive as of December 31, 2022. Refer to the Net Interest Income Sensitivity table for additional details on the Company’s interest rate sensitivity.
However, this goal can be difficult to completely achieve in times of rapidly changing interest rates and is one of many factors considered in determining the Company’s interest rate positioning. The Company is asset sensitive as of December 31, 2023. Refer to the Net Interest Income Sensitivity table for additional details on the Company’s interest rate sensitivity.
The table below sets forth, as of December 31, 2022, the calculation of the estimated changes in our net interest income that would result from changes in market interest rates over one year if we take no action from our current plan.
The table below sets forth, as of December 31, 2023, the calculation of the estimated changes in our net interest income that would result from changes in market interest rates over one year if we take no action from our current plan.
The table below represents an analysis of our interest rate risk as measured by the estimated changes in our economic value of equity, resulting from an instantaneous and sustained parallel shift in the yield curve at December 31, 2022.
The table below represents an analysis of our interest rate risk as measured by the estimated changes in our economic value of equity, resulting from an instantaneous and sustained parallel shift in the yield curve at December 31, 2023.
Removed
Basis Point Change in Net Interest Income Year 1 Change Interest Rates Year 1 Forecast From Level (Dollars in thousands) +400 $39,336 63.14 % +300 $35,752 48.27 % +200 $31,847 32.08 % +100 $28,271 17.25 % Level $24,112 — -100 $19,857 -17.65 % -200 $15,088 -37.43 % -300 $10,798 -55.22 % -400 $6,764 -71.95 % Economic Value of Equity ( “ EVE ” ).
Added
Basis Point Change in Net Interest Income Year 1 Change Interest Rates Year 1 Forecast From Level (Dollars in thousands) +400 $92,535 13.39 % +300 $90,605 11.03 % +200 $87,899 7.71 % +100 $85,257 4.47 % Level $81,606 — -100 $79,000 -3.19 % -200 $77,003 -5.64 % -300 $77,484 -5.05 % -400 $77,651 -4.85 % Economic Value of Equity ( “ EVE ” ).
Removed
Estimated Increase EVE as a Percentage of Fair (Decrease) EVE Value of Assets(3) Basis Point Increase Change in Estimated EVE (Decrease) Interest Rates(1) EVE(2) Amount Percent Ratio(4) Basis Points (Dollars in thousands) +400 $ 330,364 $ (4,740 ) (1.41 )% 4.87 % 87 +300 $ 337,010 $ 1,906 0.57 % 5.20 % 93 +200 $ 339,397 $ 4,293 1.28 % 4.33 % 77 +100 $ 340,263 $ 5,158 1.54 % 2.97 % 53 Level $ 335,105 $ — — — — -100 $ 324,423 $ (10,682 ) (3.19 )% (4.44 )% (79 ) -200 $ 308,977 $ (26,127 ) (7.80 )% (10.16 )% (182 ) -300 $ 291,949 $ (43,156 ) (12.88 )% (16.29 )% (291 ) -400 $ 273,933 $ (61,172 ) (18.25 )% (22.66 )% (405 ) (1) Assumes an immediate uniform change in interest rates at all maturities.
Added
Estimated Increase EVE as a Percentage of Fair (Decrease) EVE Value of Assets(3) Basis Point Increase Change in Estimated EVE (Decrease) Interest Rates(1) EVE(2) Amount Percent Ratio(4) Basis Points (Dollars in thousands) +400 $ 294,780 $ (27,244 ) (8.46 )% (1.56 )% (25 ) +300 $ 310,606 $ (11,418 ) (3.55 )% 1.54 % 25 +200 $ 320,330 $ (1,693 ) (0.53 )% 2.75 % 44 +100 $ 324,404 $ 2,381 0.74 % 2.29 % 36 Level $ 322,023 $ — — — — -100 $ 310,856 $ (11,168 ) (3.47 )% (4.72 )% (75 ) -200 $ 298,600 $ (23,424 ) (7.27 )% (9.72 )% (155 ) -300 $ 285,318 $ (36,705 ) (11.40 )% (15.01 )% (239 ) -400 $ 270,550 $ (51,473 ) (15.98 )% (20.67 )% (329 ) (1) Assumes an immediate uniform change in interest rates at all maturities.

Other MNSB 10-K year-over-year comparisons