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MainStreet Bancshares, Inc.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to to
Commission file number: 001-38817
MainStreet Bancshares, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Virginia | | 81-2871064 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
10089 Fairfax Boulevard, Fairfax, VA 22030
(Address of Principal Executive Offices and Zip Code)
(703) 481-4567
(Registrant’s Telephone Number, Including Area Code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act.
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock | | MNSB | | The Nasdaq Stock Market LLC |
| | | | |
Depositary Shares (each representing a 1/40th interest in a share of 7.50% Series A Fixed-Rate Non-Cumulative Perpetual Preferred Stock) | | MNSBP | | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | | ☐ | | Accelerated filer | | ☐ |
| | | |
Non-accelerated filer | | ☒ | | Smaller reporting company | | ☒ |
| | | |
Emerging growth company | | ☒ | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of August 8, 2024, there were 7,602,518 outstanding shares, par value $4.00 per share, of the issuer’s common stock.
PART I – FINANCIAL INFORMATION
Item 1 – Consolidated Financial Statements – Unaudited
MAINSTREET BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition as of June 30, 2024 and December 31, 2023 (Dollars in thousands, except share data)
| | At June 30, 2024 (unaudited) | | | At December 31, 2023 (*) | |
Assets | | | | | | | | |
Cash and due from banks | | $ | 41,697 | | | $ | 53,581 | |
Federal funds sold | | | 49,762 | | | | 60,932 | |
Cash and cash equivalents | | | 91,459 | | | | 114,513 | |
Investment securities available-for-sale, at fair value | | | 57,605 | | | | 59,928 | |
Investment securities held-to-maturity, at amortized cost, net of allowance for credit losses of $0 and $0, respectively. | | | 16,036 | | | | 17,275 | |
Restricted securities, at amortized cost | | | 26,797 | | | | 24,356 | |
Loans, net of allowance for credit losses of $17,098 and $16,506, respectively | | | 1,778,840 | | | | 1,705,137 | |
Premises and equipment, net | | | 13,787 | | | | 13,944 | |
Accrued interest and other receivables | | | 11,916 | | | | 12,390 | |
Bank owned life insurance | | | 38,901 | | | | 38,318 | |
Computer software, net of amortization | | | 17,205 | | | | 14,657 | |
Other assets | | | 41,200 | | | | 34,914 | |
Total Assets | | $ | 2,093,746 | | | $ | 2,035,432 | |
Liabilities and Stockholders’ Equity | | | | | | | | |
Liabilities | | | | | | | | |
Non-interest bearing demand deposits | | $ | 314,636 | | | $ | 364,606 | |
Interest bearing demand deposits | | | 179,513 | | | | 137,128 | |
Savings and NOW deposits | | | 60,867 | | | | 45,878 | |
Money market deposits | | | 476,396 | | | | 442,179 | |
Time deposits | | | 723,951 | | | | 696,336 | |
Total deposits | | | 1,755,363 | | | | 1,686,127 | |
Federal funds purchased | | | — | | | | 15,000 | |
Subordinated debt, net | | | 72,841 | | | | 72,642 | |
Allowance for credit losses on off-balance sheet credit exposure | | | 357 | | | | 1,009 | |
Other liabilities | | | 40,470 | | | | 39,137 | |
Total Liabilities | | | 1,869,031 | | | | 1,813,915 | |
Stockholders’ Equity | | | | | | | | |
Preferred stock, $1.00 par value, 2,000,000 shares authorized; 28,750 shares issued and outstanding at June 30, 2024 and December 31, 2023 | | | 27,263 | | | | 27,263 | |
Common stock, $4.00 par value, 10,000,000 shares authorized; issued and outstanding 7,598,529 shares (including 235,786 nonvested shares) at June 30, 2024 and 7,527,415 shares (including 228,300 nonvested shares) at December 31, 2023 | | | 29,452 | | | | 29,198 | |
Capital surplus | | | 66,392 | | | | 65,985 | |
Retained earnings | | | 109,651 | | | | 106,549 | |
Accumulated other comprehensive loss | | | (8,043 | ) | | | (7,478 | ) |
Total Stockholders’ Equity | | | 224,715 | | | | 221,517 | |
Total Liabilities and Stockholders’ Equity | | $ | 2,093,746 | | | $ | 2,035,432 | |
* Derived from audited consolidated financial statements.
See Notes to the Unaudited Consolidated Financial Statements
MAINSTREET BANCSHARES, INC. AND SUBSIDIARY
Unaudited Consolidated Statements of Income for the three and six months ended June 30, 2024 and 2023 (Dollars in thousands, except per share data)
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
31,546 |
|
|
$ |
28,855 |
|
|
$ |
62,034 |
|
|
$ |
55,586 |
|
Interest and dividends on investments securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
94 |
|
|
|
82 |
|
|
|
196 |
|
|
|
200 |
|
Tax-exempt obligations of states and political subdivisions |
|
|
268 |
|
|
|
265 |
|
|
|
538 |
|
|
|
529 |
|
Taxable obligations of states and political subdivisions |
|
|
64 |
|
|
|
64 |
|
|
|
128 |
|
|
|
128 |
|
Other |
|
|
272 |
|
|
|
261 |
|
|
|
541 |
|
|
|
598 |
|
Interest on federal funds sold and interest-bearing deposits |
|
|
1,083 |
|
|
|
1,179 |
|
|
|
2,264 |
|
|
|
2,311 |
|
Total Interest Income |
|
|
33,327 |
|
|
|
30,706 |
|
|
|
65,701 |
|
|
|
59,352 |
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on interest bearing DDA deposits |
|
|
2,172 |
|
|
|
251 |
|
|
|
4,032 |
|
|
|
594 |
|
Interest on savings and NOW deposits |
|
|
190 |
|
|
|
147 |
|
|
|
347 |
|
|
|
255 |
|
Interest on money market deposits |
|
|
5,638 |
|
|
|
2,926 |
|
|
|
10,816 |
|
|
|
4,129 |
|
Interest on time deposits |
|
|
9,027 |
|
|
|
7,077 |
|
|
|
17,861 |
|
|
|
11,221 |
|
Interest on federal funds purchased |
|
|
191 |
|
|
|
201 |
|
|
|
298 |
|
|
|
239 |
|
Interest on Federal Home Loan Bank advances |
|
|
— |
|
|
|
13 |
|
|
|
46 |
|
|
|
919 |
|
Interest on subordinated debt |
|
|
820 |
|
|
|
820 |
|
|
|
1,640 |
|
|
|
1,632 |
|
Total Interest Expense |
|
|
18,038 |
|
|
|
11,435 |
|
|
|
35,040 |
|
|
|
18,989 |
|
Net Interest Income |
|
|
15,289 |
|
|
|
19,271 |
|
|
|
30,661 |
|
|
|
40,363 |
|
Provision For Credit Losses - Loans |
|
|
931 |
|
|
|
617 |
|
|
|
1,095 |
|
|
|
1,032 |
|
(Recovery of) provision for Credit Losses - Off-Balance Sheet Credit Exposure |
|
|
(293 |
) |
|
|
21 |
|
|
|
(652 |
) |
|
|
(111 |
) |
Net Interest Income After Provision For (Recovery of) Credit Losses |
|
|
14,651 |
|
|
|
18,633 |
|
|
|
30,218 |
|
|
|
39,442 |
|
Non-Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit account service charges |
|
|
490 |
|
|
|
535 |
|
|
|
959 |
|
|
|
1,125 |
|
Bank owned life insurance income |
|
|
291 |
|
|
|
259 |
|
|
|
583 |
|
|
|
514 |
|
Net loss on securities called |
|
|
(48 |
) |
|
|
— |
|
|
|
(48 |
) |
|
|
— |
|
Other fee income |
|
|
140 |
|
|
|
16 |
|
|
|
270 |
|
|
|
174 |
|
Total Non-Interest Income |
|
|
873 |
|
|
|
810 |
|
|
|
1,764 |
|
|
|
1,813 |
|
Non-Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
7,484 |
|
|
|
6,595 |
|
|
|
14,972 |
|
|
|
14,216 |
|
Furniture and equipment expenses |
|
|
940 |
|
|
|
772 |
|
|
|
1,875 |
|
|
|
1,270 |
|
Advertising and marketing |
|
|
566 |
|
|
|
698 |
|
|
|
1,020 |
|
|
|
1,495 |
|
Occupancy expenses |
|
|
415 |
|
|
|
426 |
|
|
|
849 |
|
|
|
912 |
|
Outside services |
|
|
839 |
|
|
|
504 |
|
|
|
1,614 |
|
|
|
994 |
|
Administrative expenses |
|
|
229 |
|
|
|
211 |
|
|
|
471 |
|
|
|
426 |
|
Other operating expenses |
|
|
2,195 |
|
|
|
1,646 |
|
|
|
4,190 |
|
|
|
3,242 |
|
Total Non-Interest Expense |
|
|
12,668 |
|
|
|
10,852 |
|
|
|
24,991 |
|
|
|
22,555 |
|
Income Before Income Taxes |
|
|
2,856 |
|
|
|
8,591 |
|
|
|
6,991 |
|
|
|
18,700 |
|
Income Tax Expense |
|
|
238 |
|
|
|
1,645 |
|
|
|
1,068 |
|
|
|
3,602 |
|
Net Income |
|
$ |
2,618 |
|
|
$ |
6,946 |
|
|
$ |
5,923 |
|
|
$ |
15,098 |
|
Preferred Stock Dividends |
|
|
539 |
|
|
|
539 |
|
|
|
1,078 |
|
|
|
1,078 |
|
Net Income Available to Common Shareholders |
|
$ |
2,079 |
|
|
$ |
6,407 |
|
|
$ |
4,845 |
|
|
$ |
14,020 |
|
Earnings Per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.27 |
|
|
$ |
0.85 |
|
|
$ |
0.64 |
|
|
$ |
1.86 |
|
Diluted |
|
$ |
0.27 |
|
|
$ |
0.85 |
|
|
$ |
0.64 |
|
|
$ |
1.86 |
|
See Notes to the Unaudited Consolidated Financial Statements
MAINSTREET BANCSHARES, INC. AND SUBSIDIARY
Unaudited Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2024 and 2023 (Dollars in thousands)
| | For the Three Months Ended June 30, | | | For the Six Months Ended June 30, | |
| | 2024 | | | 2023 | | | 2024 | | | 2023 | |
Comprehensive Income, net of taxes | | | | | | | | | | | | | | | | |
Net Income | | $ | 2,618 | | | $ | 6,946 | | | $ | 5,923 | | | $ | 15,098 | |
Other comprehensive income (loss), net of tax expense (benefit): | | | | | | | | | | | | | | | | |
Unrealized gain (loss) on available for sale securities arising during the period (net of tax expense (benefit), ($30) and ($204), respectively, for the three months ended June 30, and ($143) and $49, respectively for the six months ended June 30). | | | (113 | ) | | | (684 | ) | | | (565 | ) | | | 197 | |
Add: reclassification adjustment for amortization of unrealized losses on securities transferred from available for sale to held to maturity (net of tax, $0 and $0, respectively, for the three months ended June 30, and $0 and $1, respectively, for the six months ended June 30). | | | — | | | | 2 | | | | — | | | | 3 | |
Other comprehensive (loss) income | | | (113 | ) | | | (682 | ) | | | (565 | ) | | | 200 | |
Comprehensive Income | | $ | 2,505 | | | $ | 6,264 | | | $ | 5,358 | | | $ | 15,298 | |
See Notes to the Unaudited Consolidated Financial Statements
MAINSTREET BANCSHARES, INC. AND SUBSIDIARY
Unaudited Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2024 and 2023 (Dollars in thousands)
| | | | | | | | | | | | | | | | | | Accumulated Other | | | | | |
| | Preferred | | | Common | | | Capital | | | Retained | | | Comprehensive | | | | | |
| | Stock | | | Stock | | | Surplus | | | Earnings | | | Loss | | | Total | |
Balance, March 31, 2024 | | $ | 27,263 | | | $ | 29,514 | | | $ | 65,940 | | | $ | 108,334 | | | $ | (7,930 | ) | | $ | 223,121 | |
Vesting of restricted stock | | | — | | | | 13 | | | | (13 | ) | | | — | | | | — | | | | — | |
Stock based compensation expense | | | — | | | | — | | | | 690 | | | | — | | | | — | | | | 690 | |
Common stock repurchased | | | — | | | | (75 | ) | | | (225 | ) | | | — | | | | — | | | | (300 | ) |
Dividends on preferred stock - ($0.47 per depositary share) | | | — | | | | — | | | | — | | | | (539 | ) | | | — | | | | (539 | ) |
Dividends on common stock - ($0.10 per share) | | | — | | | | — | | | | — | | | | (762 | ) | | | — | | | | (762 | ) |
Net income | | | — | | | | — | | | | — | | | | 2,618 | | | | — | | | | 2,618 | |
Other comprehensive loss | | | — | | | | — | | | | — | | | | — | | | | (113 | ) | | | (113 | ) |
Balance, June 30, 2024 | | $ | 27,263 | | | $ | 29,452 | | | $ | 66,392 | | | $ | 109,651 | | | $ | (8,043 | ) | | $ | 224,715 | |
| | | | | | | | | | | | | | | | | | Accumulated Other | | | | | |
| | Preferred | | | Common | | | Capital | | | Retained | | | Comprehensive | | | | | |
| | Stock | | | Stock | | | Surplus | | | Earnings | | | Loss | | | Total | |
Balance, December 31, 2023 | | $ | 27,263 | | | $ | 29,198 | | | $ | 65,985 | | | $ | 106,549 | | | $ | (7,478 | ) | | $ | 221,517 | |
Cumulative change in accounting principle (Note 1) | | | — | | | | — | | | | — | | | | (217 | ) | | | — | | | | (217 | ) |
Vesting of restricted stock | | | — | | | | 421 | | | | (421 | ) | | | — | | | | — | | | | — | |
Stock based compensation expense | | | — | | | | — | | | | 1,380 | | | | — | | | | — | | | | 1,380 | |
Common stock repurchased | | | — | | | | (167 | ) | | | (552 | ) | | | — | | | | — | | | | (719 | ) |
Dividends on preferred stock - ($0.94 per depositary share) | | | — | | | | — | | | | — | | | | (1,078 | ) | | | — | | | | (1,078 | ) |
Dividends on common stock - ($0.20 per share) | | | — | | | | — | | | | — | | | | (1,526 | ) | | | — | | | | (1,526 | ) |
Net income | | | — | | | | — | | | | — | | | | 5,923 | | | | — | | | | 5,923 | |
Other comprehensive loss | | | — | | | | — | | | | — | | | | — | | | | (565 | ) | | | (565 | ) |
Balance, June 30, 2024 | | $ | 27,263 | | | $ | 29,452 | | | $ | 66,392 | | | $ | 109,651 | | | $ | (8,043 | ) | | $ | 224,715 | |
| | | | | | | | | | | | | | | | | | Accumulated Other | | | | | |
| | Preferred | | | Common | | | Capital | | | Retained | | | Comprehensive | | | | | |
| | Stock | | | Stock | | | Surplus | | | Earnings | | | Loss | | | Total | |
Balance, March 31, 2023 | | $ | 27,263 | | | $ | 29,185 | | | $ | 64,213 | | | $ | 91,991 | | | $ | (7,664 | ) | | $ | 204,988 | |
Stock based compensation expense | | | — | | | | — | | | | 590 | | | | — | | | | — | | | | 590 | |
Common stock repurchased | | | — | | | | (8 | ) | | | (35 | ) | | | — | | | | — | | | | (43 | ) |
Dividends on preferred stock - ($0.47 per depositary share) | | | — | | | | — | | | | — | | | | (539 | ) | | | — | | | | (539 | ) |
Dividends on common stock - ($0.10 per share) | | | — | | | | — | | | | — | | | | (752 | ) | | | — | | | | (752 | ) |
Net income | | | — | | | | — | | | | — | | | | 6,946 | | | | — | | | | 6,946 | |
Other comprehensive loss | | | — | | | | — | | | | — | | | | — | | | | (682 | ) | | | (682 | ) |
Balance, June 30, 2023 | | $ | 27,263 | | | $ | 29,177 | | | $ | 64,768 | | | $ | 97,646 | | | $ | (8,346 | ) | | $ | 210,508 | |
| | | | | | | | | | | | | | | | | | Accumulated Other | | | | | |
| | Preferred | | | Common | | | Capital | | | Retained | | | Comprehensive | | | | | |
| | Stock | | | Stock | | | Surplus | | | Earnings | | | Income (Loss) | | | Total | |
Balance, December 31, 2022 | | $ | 27,263 | | | $ | 28,736 | | | $ | 63,999 | | | $ | 86,830 | | | $ | (8,546 | ) | | $ | 198,282 | |
Cumulative change in accounting principle (Note 1) | | | — | | | | — | | | | — | | | | (1,699 | ) | | | — | | | | (1,699 | ) |
Vesting of restricted stock | | | — | | | | 449 | | | | (449 | ) | | | — | | | | — | | | | — | |
Stock based compensation expense | | | — | | | | — | | | | 1,253 | | | | — | | | | — | | | | 1,253 | |
Common stock repurchased | | | — | | | | (8 | ) | | | (35 | ) | | | — | | | | — | | | | (43 | ) |
Dividends on preferred stock - ($0.94 per depositary share) | | | — | | | | — | | | | — | | | | (1,078 | ) | | | — | | | | (1,078 | ) |
Dividends on common stock - ($0.20 per share) | | | — | | | | — | | | | — | | | | (1,505 | ) | | | — | | | | (1,505 | ) |
Net income | | | — | | | | — | | | | — | | | | 15,098 | | | | — | | | | 15,098 | |
Other comprehensive income | | | — | | | | — | | | | — | | | | — | | | | 200 | | | | 200 | |
Balance, June 30, 2023 | | $ | 27,263 | | | $ | 29,177 | | | $ | 64,768 | | | $ | 97,646 | | | $ | (8,346 | ) | | $ | 210,508 | |
See Notes to the Unaudited Consolidated Financial Statements
MAINSTREET BANCSHARES, INC. AND SUBSIDIARY
Unaudited Consolidated Statements of Cash Flows (Dollars in thousands)
For the six months ended June 30, |
|
2024 |
|
|
2023 |
|
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,923 |
|
|
$ |
15,098 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation, amortization, and accretion, net |
|
|
1,631 |
|
|
|
1,137 |
|
Amortization of right-of-use assets |
|
|
249 |
|
|
|
142 |
|
Deferred income tax expense |
|
|
922 |
|
|
|
289 |
|
Loss on securities called |
|
|
48 |
|
|
|
— |
|
Gain on disposal of premises and equipment |
|
|
(25 |
) |
|
|
(39 |
) |
Provision for credit losses, net |
|
|
443 |
|
|
|
921 |
|
Stock based compensation expense |
|
|
1,380 |
|
|
|
1,253 |
|
Income from bank owned life insurance |
|
|
(583 |
) |
|
|
(514 |
) |
Subordinated debt amortization expense |
|
|
199 |
|
|
|
199 |
|
Loss on New Market Tax Credit investment operations |
|
|
— |
|
|
|
88 |
|
Change in: |
|
|
|
|
|
|
|
|
Accrued interest receivable and other receivables |
|
|
474 |
|
|
|
(678 |
) |
Other assets |
|
|
(7,177 |
) |
|
|
225 |
|
Other liabilities |
|
|
1,333 |
|
|
|
(1,441 |
) |
Net cash provided by operating activities |
|
|
4,817 |
|
|
|
16,680 |
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Activity in available-for-sale securities: |
|
|
|
|
|
|
|
|
Payments |
|
|
1,389 |
|
|
|
2,097 |
|
Calls |
|
|
445 |
|
|
|
— |
|
Purchases |
|
|
(445 |
) |
|
|
— |
|
Activity in held-to-maturity securities: |
|
|
|
|
|
|
|
|
Calls |
|
|
1,200 |
|
|
|
— |
|
Purchases of equity securities |
|
|
(3,364 |
) |
|
|
(82 |
) |
Purchases of restricted investment in bank stock |
|
|
(1,500 |
) |
|
|
(4,638 |
) |
Redemption of restricted investment in bank stock |
|
|
1,425 |
|
|
|
8,389 |
|
Net increase in loan portfolio |
|
|
(74,798 |
) |
|
|
(59,461 |
) |
Proceeds from sale of premises and equipment |
|
|
121 |
|
|
|
39 |
|
Purchase of premises and equipment |
|
|
(709 |
) |
|
|
(335 |
) |
Computer software developed |
|
|
(2,548 |
) |
|
|
(3,117 |
) |
Net cash used in investing activities |
|
|
(78,784 |
) |
|
|
(57,108 |
) |
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Net decrease in non-interest deposits |
|
|
(49,970 |
) |
|
|
(161,697 |
) |
Net increase in interest bearing demand, savings, and time deposits |
|
|
119,206 |
|
|
|
242,192 |
|
Net decrease in Federal Home Loan Bank advances |
|
|
— |
|
|
|
(100,000 |
) |
Net increase (decrease) in federal funds purchased |
|
|
(15,000 |
) |
|
|
30,000 |
|
Cash dividends paid on preferred stock |
|
|
(1,078 |
) |
|
|
(1,078 |
) |
Cash dividends paid on common stock |
|
|
(1,526 |
) |
|
|
(1,505 |
) |
Repurchases of common stock |
|
|
(719 |
) |
|
|
(43 |
) |
Net cash provided by financing activities |
|
|
50,913 |
|
|
|
7,869 |
|
Increase in Cash and Cash Equivalents |
|
|
(23,054 |
) |
|
|
(32,559 |
) |
Cash and Cash Equivalents, beginning of period |
|
|
114,513 |
|
|
|
130,600 |
|
Cash and Cash Equivalents, end of period |
|
$ |
91,459 |
|
|
$ |
98,041 |
|
Supplementary Disclosure of Cash Flow Information |
|
|
|
|
|
|
|
|
Cash paid during the period for interest |
|
$ |
34,398 |
|
|
$ |
16,783 |
|
Cash paid during the period for income taxes |
|
$ |
1,250 |
|
|
$ |
4,455 |
|
Net unrealized (loss) gain on securities available-for-sale |
|
$ |
(708 |
) |
|
$ |
246 |
|
Net cumulative change in accounting principle |
|
$ |
(217 |
) |
|
$ |
(1,699 |
) |
See Notes to the Unaudited Consolidated Financial Statements
MAINSTREET BANCSHARES, INC. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
Note 1. Organization, Basis of Presentation and Impact of Recently Issued Accounting Pronouncements
Organization
MainStreet Bancshares, Inc. (the “Company”) is a financial holding company incorporated under the laws of the Commonwealth of Virginia whose primary activity is the ownership and management of MainStreet Bank (the “Bank”). On October 12, 2021, the Company filed an election with the Federal Reserve Board to be a financial holding company in order to engage in a broader range of financial activities than are permitted for bank holding companies generally. The Company is authorized to issue 15,000,000 shares of common stock with a par value of $4.00 per share. Additionally, the Company is authorized to issue 2,000,000 shares of preferred stock at a par value $1.00 per share. There are currently 28,750 shares of preferred stock outstanding. The Company is regulated under the Bank Holding Company Act of 1956, as amended (“BHC Act”) and is subject to inspection, examination, and supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve”).
On April 18, 2019, the Company completed the registration of its common stock with the Securities Exchange Commission (the “SEC”) through its filing of a General Form for Registration of Securities on Form 10 (“Form 10”), pursuant to Section 12(b) of the Securities Exchange Act of 1934. The Company is considered an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the “JOBS Act,” and as defined in Section 2(a) of the Securities Act of 1933, as amended, or the “Securities Act.” We are also a “smaller reporting company” as defined in Exchange Act Rule 12b-2. As such, we may elect to comply with certain reduced public company reporting requirements in future reports that we file with the SEC.
The Company was approved to list shares of our common stock on the Nasdaq Capital Market under our current symbol “MNSB” as of April 22, 2019. We were approved to list depositary shares of preferred stock on the Nasdaq Capital Market under the symbol “MNSBP” as of September 16, 2020. Each depositary share represents a 1/40th ownership interest in a share of 7.50% Series A Fixed-Rate Non-Cumulative Perpetual Preferred Stock.
The Bank is headquartered in Fairfax, Virginia where it also operates a branch. The Bank was incorporated on March 28, 2003, and received its charter from the Bureau of Financial Institutions of the Commonwealth of Virginia (the “Bureau”) on March 16, 2004. The Bank commenced regular operations on May 26, 2004, and is supervised by the Bureau and the Federal Reserve. The Bank is a member of the Federal Reserve System and the Federal Deposit Insurance Corporation. The Bank places special emphasis on serving the needs of retail customers, small and medium-sized businesses and professionals in the Washington, D.C. metropolitan area.
In September 2021, MainStreet Bancshares, Inc. established MainStreet Community Capital, LLC, a wholly owned subsidiary, to be a community development entity (“CDE”). This CDE will be an intermediary vehicle for the provision of loans and investments in Low-Income Communities (“LICs”). In January 2022, the Community Development Financial Institutions Fund (“CDFI”) of the United States Department of the Treasury certified MainStreet Community Capital, LLC as a registered CDE. MainStreet Community Capital's primary business objective will be to apply for and receive New Market Tax Credit ("NMTC") allocations that are awarded and distributed annually.
On October 25, 2021, MainStreet Bancshares, Inc. formally introduced Avenu, a division of MainStreet Bank. Avenu provides an embedded Banking as a Service (BaaS) solution that connects our partners (fintechs, application developers, money movers, and entrepreneurs) directly and seamlessly to our Software as a Service (SaaS) solution. Our SaaS software program expects to be deployed in 2024. Additional information can be found in our investor presentations filed quarterly.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) for interim information and with the instructions to the Quarterly Report on Form 10-Q, as applicable to a smaller reporting company. Accordingly, they do not include all the information and notes required by US GAAP for complete financial statements.
The financial statements are unaudited; but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation thereof. The balances as of December 31, 2023 have been derived from the audited consolidated financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto contained in the Form 10-K filed by the Company with the SEC on March 20, 2024. The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024, or any other period.
Use of estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from the estimates.
The Company’s critical accounting policies relate to (1) the allowance for credit losses on loans, (2) fair value of financial instruments, and (3) derivative financial instruments. These critical accounting policies require the use of estimates, assumptions and judgments which are based on information available as of the date of the financial statements. Accordingly, as this information changes, future financial statements could reflect the use of different estimates, assumptions, and judgments. Certain determinations inherently have a greater reliance on the use of estimates, assumptions, and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. In connection with the determination of the allowances for credit losses on loans management obtains independent appraisals for significant properties.
Recently Adopted Accounting Developments
FASB Accounting Standards Update No. 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method ("ASU 2023-02")
On March 29, 2023, the FASB issued ASU 2023-02 which amends previous guidance to allow entities to account for qualifying tax equity investments using the proportional amortization method regardless of the program giving rise to the related income tax credits, as opposed to only being allowed to apply this method to qualifying tax equity investments in low-income housing tax credit structures as was the case under previous guidance. ASU 2023-02 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. On January 1, 2024, the Company adopted ASU 2023-02 using the modified retrospective approach, which did not have a material impact on the Company's financial statements. The Company transitioned from the equity method of accounting and began applying the proportional amortization method of accounting to its qualifying new markets tax credit investments in addition to its low income housing tax credit partnerships already subject to the proportional amortization method. The cumulative change in accounting principle was approximately $217,000.
Impact of Recently Issued Accounting Pronouncements
In July 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718)”. This ASU amends the FASB Accounting Standards Codification for SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. ASU 2023-03 is effective upon addition to the FASB Codification. The Company does not expect the adoption of ASU 2023-03 to have a material impact on its consolidated financial statements.
In October 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative”. This ASU incorporates certain U.S. Securities and Exchange Commission (SEC) disclosure requirements into the FASB Accounting Standards Codification. The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. For all other entities, the amendments will be effective two years later. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective for any entity. The Company does not expect the adoption of ASU 2023-06 to have a material impact on its consolidated financial statements.
In December 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. This ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied on a prospective basis; however, retrospective application is permitted. Company does not expect the adoption of ASU 2023-09 to have a material impact on its consolidated financial statements.
In March 2024, the Financial Accounting Standards Board (FASB) issued ASU 2024-02, “Codification Improvements – Amendments to Remove References to the Concepts Statements”. This ASU contains amendments to the Codification that remove references to various Concepts Statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other instances, the references were used in prior Statements to provide guidance in certain topical areas. This ASU is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied prospectively to all new transactions recognized on or after the date that the entity first applies the amendments or retrospectively to the beginning of the earliest comparative period presented in which the amendments were first applied. If an entity adopts the amendments retrospectively, it should adjust the opening balance of retained earnings as of the beginning of the earliest comparative period presented. The Company does not expect the adoption of ASU 2024-02 to have a material impact on its consolidated financial statements.
In March 2024, the Financial Accounting Standards Board (FASB) issued ASU 2024-01, “Compensation – Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards”. This ASU provides an illustrative example intended to demonstrate how entities that account for profits interest and similar awards would determine whether a profits interest award should be accounted for in accordance with Topic 718. This ASU is effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. Early adoption is permitted. If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the annual period that includes that interim period. Transition can be done either retrospectively or prospectively. The Company does not expect the adoption of ASU 2024-01 to have a material impact on its consolidated financial statements.
Note 2. Investment Securities
The following tables summarize the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at June 30, 2024 and December 31, 2023 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss. The Company did not record an allowance for credit losses ("ACL") on its securities available-for-sale or held-to-maturity portfolio as of June 30, 2024 and December 31, 2023.
Investment securities available-for-sale was comprised of the following:
| | June 30, 2024 | |
(Dollars in thousands) | | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Fair Value | |
Collateralized Mortgage Backed | | $ | 22,412 | | | $ | — | | | $ | (4,284 | ) | | $ | 18,128 | |
Subordinated Debt | | | 9,470 | | | | — | | | | (1,369 | ) | | | 8,101 | |
Preferred Stock | | | 445 | | | | — | | | | — | | | | 445 | |
Municipal Securities: | | | | | | | | | | | | | | | | |
Taxable | | | 10,636 | | | | — | | | | (2,384 | ) | | | 8,252 | |
Tax-exempt | | | 22,595 | | | | — | | | | (2,392 | ) | | | 20,203 | |
U.S. Governmental Agencies | | | 2,492 | | | | 8 | | | | (24 | ) | | | 2,476 | |
Total | | $ | 68,050 | | | $ | 8 | | | $ | (10,453 | ) | | $ | 57,605 | |
Investment securities held-to-maturity was comprised of the following:
| | June 30, 2024 | |
(Dollars in thousands) | | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Fair Value | |
Municipal Securities: | | | | | | | | | | | | | | | | |
Tax-exempt | | $ | 13,536 | | | $ | — | | | $ | (226 | ) | | $ | 13,310 | |
Subordinated Debt | | | 2,500 | | | | — | | | | (20 | ) | | | 2,480 | |
Total | | $ | 16,036 | | | $ | — | | | $ | (246 | ) | | $ | 15,790 | |
Investment securities available-for-sale was comprised of the following:
| | December 31, 2023 | |
(Dollars in thousands) | | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Fair Value | |
Collateralized Mortgage Backed | | $ | 23,446 | | | $ | — | | | $ | (3,931 | ) | | $ | 19,515 | |
Subordinated Debt | | | 9,970 | | | | — | | | | (1,503 | ) | | | 8,467 | |
Municipal Securities: | | | | | | | | | | | | | | | | |
Taxable | | | 10,649 | | | | — | | | | (2,342 | ) | | | 8,307 | |
Tax-exempt | | | 22,668 | | | | 23 | | | | (1,949 | ) | | | 20,742 | |
U.S. Governmental Agencies | | | 2,932 | | | | 3 | | | | (38 | ) | | | 2,897 | |
Total | | $ | 69,665 | | | $ | 26 | | | $ | (9,763 | ) | | $ | 59,928 | |
Investment securities held-to-maturity was comprised of the following:
| | December 31, 2023 | |
(Dollars in thousands) | | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Fair Value | |
Municipal Securities: | | | | | | | | | | | | | | | | |
Tax-exempt | | $ | 14,775 | | | $ | 19 | | | $ | (121 | ) | | $ | 14,673 | |
Subordinated Debt | | | 2,500 | | | | — | | | | (10 | ) | | | 2,490 | |
Total | | $ | 17,275 | | | $ | 19 | | | $ | (131 | ) | | $ | 17,163 | |
Credit Quality Indicators and Allowance for Credit Losses - HTM
For HTM securities, the Company evaluates the credit risk of its securities on at least a quarterly basis. The Company estimates expected credit losses on HTM debt securities on an individual basis using security-level credit ratings. The Company’s HTM securities ACL was immaterial at June 30, 2024 and December 31, 2023. The primary indicators of credit quality for the Company’s HTM portfolio are security type and credit rating, which is influenced by a number of factors including obligor cash flow, geography, seniority, and others. The majority of the Company’s HTM securities with credit risk are obligations of states and political subdivisions.
The following table presents the amortized cost of HTM securities as of June 30, 2024 and December 31, 2023 by security type and credit rating:
(Dollars in thousands) | | Municipal Securities | | | Subordinated Debt | | | Total HTM securities | |
June 30, 2024 | | | | | | | | | | | | |
Credit Rating: | | | | | | | | | | | | |
AAA/AA/A | | $ | 13,536 | | | $ | — | | | $ | 13,536 | |
Not Rated - Non Agency | | | — | | | | 2,500 | | | | 2,500 | |
Total | | $ | 13,536 | | | $ | 2,500 | | | $ | 16,036 | |
December 31, 2023 | | | | | | | | | | | | |
Credit Rating: | | | | | | | | | | | | |
AAA/AA/A | | $ | 14,775 | | | $ | — | | | $ | 14,775 | |
Not Rated - Non Agency | | | — | | | | 2,500 | | | | |