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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Amendment No. 3)

(Mark One)

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2024

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM 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)

(Zip Code)

Registrant’s telephone number, including area code: (703) 481-4567

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock

MNSB

The Nasdaq Stock Market LLC

Depositary Shares (each representing a 1/40^th
interest in a share of 7.50% Series A Fixed-Rate Non-Cumulative Perpetual Preferred Stock)

MNSBP

The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. yes ☐ No ☒

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. yes ☐ No ☒

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, 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the Registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the Registrant's executive officers during the relevant recovery period pursuant to section 240.10D-1(b). ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). yes ☐ no ☒

As of June 30, 2024, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the shares of common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on The NASDAQ Stock Market, was $134,721,919. The number of shares of Registrant’s Common Stock outstanding as of March 10, 2025 was 7,728,106.

DOCUMENTS INCORPORATED BY REFERENCE:

The information required by Part III of this Annual Report on Form 10-K will be found in portions of the Registrant’s definitive proxy statement for its 2025 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, and such information is incorporated herein by this reference.

Auditor Firm ID: 613

Auditor Name: Yount, Hyde & Barbour, P.C.

Auditor Location: Winchester, Virginia, USA

EXPLANATORY NOTE

MainStreet Bancshares, Inc. ("we" or the "Company") is filing this Amendment No. 3 on Form 10-K/A (the “Amendment”) to its Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as filed with the United States Securities and Exchange Commission on March 14, 2025 (the “Original Report"). Although referenced in the opinion of the Company’s independent auditors with respect to the financial statements, the full text of the opinion of the Company’s independent auditor with respect to its internal control over financial reporting was inadvertently omitted from the Original Report. Additionally, Item 9A of the Original Report is amended to disclose the opinion of the Company’s independent auditor with respect to its internal control over financial reporting.

Pursuant to Rule 12b-15 promulgated under the Securities and Exchange Act of 1934, as amended, we have included the entire text of Part II, Item 8 and Item 9A in this Form 10-K/A. Part IV, Item 15 includes the consent of Yount, Hyde & Barbour, P.C. and updated certifications of the Company’s Chief Executive Officer and Chief Financial Officer.

Except as expressly set forth herein, this Amendment does not reflect events occurring after the date of the Original Report or modify or update any of the other disclosures contained therein in any way other than as required to reflect the amendments referred to above. Accordingly, this Amendment should be read in conjunction with the Original Report and the Company's other filings with the SEC.

Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors

MainStreet Bancshares, Inc.

Fairfax, Virginia

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial condition of MainStreet Bancshares, Inc. and Subsidiary (the Company) as of December 31, 2024 and 2023, the related consolidated statements of income (loss), comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 14, 2025 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses – Loans Collectively Evaluated for Losses

As described in Note 1 – Organization, Basis of Presentation and Impact of Recently Issued Accounting Pronouncements and Note 5 – Allowance for Credit Losses in the consolidated financial statements, the Company accounts for its allowance for credit losses on loans (ACLL) in accordance with ASC 326. The ACLL is a valuation allowance that represents management’s best estimate of expected credit losses on loans measured at amortized cost considering available information, from internal and external sources, relevant to assessing collectability over the loans’ contractual terms. Loans which share common risk characteristics are pooled and collectively evaluated by the Company using historical data, as well as assessments of current conditions and reasonable and supportable forecasts of future conditions. The Company’s ACLL related to collectively evaluated loans made up the total recorded ACLL of $19.5 million as of December 31, 2024. The collectively evaluated ACLL consists of quantitative and qualitative components.

The quantitative component consists of loss estimates derived from a weighted average remaining maturity (“WARM”) model using external observations of historical loan losses adjusted for estimated attrition and forecasts of future conditions over a reasonable and supportable period. These estimates consider large amounts of data in tabulating loss and attrition rates and require complex calculations as well as management judgment in the selection of appropriate inputs.

In addition to the quantitative component, the collectively evaluated ACLL also includes a qualitative component which aggregates management’s assessment of available information relevant to assessing collectability that is not captured in the quantitative loss estimation process. Factors considered by management in developing its qualitative estimates include: changes in lending policies and procedures; changes in international, national, regional and local economic conditions; changes in the nature and volume of the portfolio and terms of loans; changes in the experience, depth, and ability of lending management; changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified loans; changes in the quality of the Company’s loan review system; changes in the value of underlying collateral for collateral-dependent loans; the existence and effect of any concentrations of credit and changes in the level of such concentrations; and the effect of other external factors (i.e. competition, legal and regulatory requirements, etc.) on the level of credit losses.

Management exercised significant judgment when estimating the ACLL on collectively evaluated loans. We identified the estimation of the collectively evaluated ACLL as a critical audit matter as auditing the collectively evaluated ACLL involved especially complex and subjective auditor judgment in evaluating management’s assessment of the inherently subjective estimates.

The primary audit procedures we performed to address this critical audit matter included:

●

Substantively testing management’s process for measuring the collectively evaluated ACLL, including:

Evaluating conceptual soundness, assumptions, and key data inputs of the Company’s WARM methodology, including the identification of loan pools, the calculation of loss rate inputs, and the calculation of attrition rate inputs for each pool.

Evaluating the methodology and testing the accuracy of incorporating reasonable and supportable forecasts in the collectively evaluated ACLL estimate.

Evaluating the completeness and accuracy of data inputs used as a basis for the qualitative factors.

Evaluating the qualitative factors for directional consistency in comparison to prior periods and for reasonableness in comparison to underlying supporting data.

Testing the mathematical accuracy of the ACLL for collectively evaluated loans including both the quantitative and qualitative components of the calculation.

/s/ YOUNT, HYDE & BARBOUR, P.C.

We have served as the Company's auditor since 2008.

Owings Mills, Maryland

March 14, 2025

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors

MainStreet Bancshares, Inc.

Fairfax, Virginia

Opinion on the Internal Control Over Financial Reporting

We have audited MainStreet Bancshares, Inc. and Subsidiary’s (the Company) internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial condition as of December 31, 2024 and 2023, the related consolidated statements of income (loss), comprehensive income (loss), stockholders’ equity, and cash flows for the three years ended December 31, 2024, and the related notes to the consolidated financial statements (collectively, the financial statements) of the Company and our report dated March 14, 2025 expressed an unqualified opinion.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying financial statements. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ YOUNT, HYDE & BARBOUR, P.C.

Owings Mills, Maryland

March 14, 2025

Item 8 – Financial Statements and Supplementary Data

Consolidated Financial Statements

Consolidated Statements of Financial Condition as of December 31, 2024 and December 31, 2023 (Dollars in thousands, except per share data)

	*At December 31, 2024*			*At December 31, 2023*
Assets
Cash and due from banks	$	47,553		$	53,581
Federal funds sold		160,155			60,932
Cash and cash equivalents		207,708			114,513
Investment securities available-for-sale (AFS), at fair value		55,747			59,928
Investment securities held-to-maturity (HTM), at amortized cost, net of allowance for credit losses of $0 and $0, respectively.		16,078			17,275
Restricted securities, at amortized cost		30,623			24,356
Loans, net of allowance for credit losses of $19,450 and $16,506, respectively		1,810,556			1,705,137
Premises and equipment, net		13,287			13,944
Accrued interest and other receivables		11,311			12,390
Computer software, net of amortization		—			14,657
Bank owned life insurance		39,507			38,318
Other assets		43,281			34,914
Total Assets	$	2,228,098		$	2,035,432
Liabilities and Stockholders’ Equity
Liabilities
Non-interest bearing deposits	$	324,307		$	364,606
Interest bearing demand deposits		139,780			137,128
Savings and NOW deposits		64,337			45,878
Money market deposits		560,082			442,179
Time deposits		819,288			696,336
Total deposits		1,907,794			1,686,127
Federal funds purchased		—			15,000
Subordinated debt, net		73,039			72,642
Allowance for credit losses on off-balance sheet credit exposure		287			1,009
Other liabilities		38,987			39,137
Total Liabilities		2,020,107			1,813,915
Commitments and contingencies (Note 13)
Stockholders’ Equity
Preferred stock, $1.00 par value, 2,000,000 shares authorized non-cumulative perpetual; 28,750 issued and outstanding as of December 31, 2024 and December 31, 2023		27,263			27,263
Common stock, $4.00 par value, 15,000,000 shares authorized; issued and outstanding 7,603,765 shares (including 237,717 nonvested shares) for December 31, 2024 and 7,527,415 shares (including 228,300 nonvested shares) for December 31, 2023		29,466			29,198
Capital surplus		67,823			65,985
Retained earnings		91,150			106,549
Accumulated other comprehensive (loss)		(7,711	)		(7,478	)
Total Stockholders’ Equity		207,991			221,517
Total Liabilities and Stockholders’ Equity	$	2,228,098		$	2,035,432

See Notes to the Consolidated Financial Statements

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

	*For the Year Ended December 31,*
	*2024*			*2023*			*2022*
Interest Income
Interest and fees on loans	$	125,177		$	116,482		$	79,045
Interest and dividends on investments securities
U.S. government agencies and corporations		151			—			37
Mortgage-backed securities		374			395			438
Tax-exempt obligations of states and political subdivisions		1,093			1,065			1,058
Taxable obligations of states and political subdivisions		256			256			254
Other		912			1,185			874
Interest on federal funds sold		6,652			5,038			2,312
Total Interest Income		134,615			124,421			84,018
Interest Expense
Interest on interest bearing demand deposits		8,661			1,786			494
Interest on savings and NOW deposits		754			546			203
Interest on money market deposits		21,386			13,631			1,380
Interest on time deposits		37,364			26,905			8,009
Interest on federal funds purchased		575			299			—
Interest on Federal Home Loan Bank advances		46			1,224			347
Interest on subordinated debt		3,255			3,288			2,936
Total Interest Expense		72,041			47,679			13,369
Net Interest Income		62,574			76,742			70,649
Provision For Credit Losses - Loans		7,485			1,943			2,398
Recovery of Credit Losses - Off-Balance Sheet Credit Exposure		(722	)		(301	)		—
Net interest income after provision for (recovery of) credit losses		55,811			75,100			68,251
Non-Interest Income
Deposit account service charges		1,996			2,149			2,420
Bank owned life insurance income		1,189			1,069			1,008
Loan swap fee income		—			—			619
Net gain (loss) on securities called or matured		(48	)		—			4
Net loss on sale of loans		—			—			(168	)
Other fee income		115			122			778
Total Non-Interest Income		3,252			3,340			4,661
Non-Interest Expense
Salaries and employee benefits		30,475			28,267			23,801
Furniture and equipment expenses		3,636			2,787			2,786
Advertising and marketing		2,199			2,343			2,304
Occupancy expenses		1,614			1,684			1,471
Outside services		3,627			2,044			2,075
Franchise tax		2,226			1,835			1,430
FDIC insurance		1,342			1,131			637
Data processing		1,354			1,328			1,303
Administrative expenses		929			922			872
Other real estate expenses, net		—			—			38
Computer software intangible impairment		19,721			—			—
Other operating expenses		5,844			3,275			2,807
Total Non-Interest Expense		72,967			45,616			39,524
Income (Loss) before income taxes		(13,904	)		32,824			33,388
Income Tax Expense (Benefit)		(3,924	)		6,239			6,714
Net Income (Loss)	$	(9,980	)	$	26,585		$	26,674
Preferred Stock Dividends		2,156			2,156			2,156
Net Income (Loss) available to common shareholders	$	(12,136	)	$	24,429		$	24,518
Earnings (loss) per common share:
Basic	$	(1.60	)	$	3.25		$	3.26
Diluted	$	(1.60	)	$	3.25		$	3.26

See Notes to the Consolidated Financial Statements

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

	*For the Year Ended December 31,*
	*2024*			*2023*		*2022*
Comprehensive Income (Loss), net of taxes
Net Income (Loss)	$	(9,980	)	$	26,585	$	26,674
Other comprehensive income (loss), net of tax expense (benefit):
Unrealized gains (losses) on available for sale securities arising during the period (net of tax expense (benefit), ($44), $309 and ($2.6 million), respectively)		(233	)		1,062		(8,759	)
Add: reclassification adjustment for amortization of unrealized losses on securities transferred from available for sale to held to maturity (net of tax, $0, $2, and $4 respectively)		—			6		16
Other comprehensive income (loss)		(233	)		1,068		(8,743	)
Comprehensive Income (Loss)	$	(10,213	)	$	27,653	$	17,931

See Notes to the Consolidated Financial Statements

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2024, 2023, and 2022 (Dollars in thousands).

												*Accumulated Other*
	*Preferred*		*Common*			*Capital*			*Retained*			*Comprehensive*
	*Stock*		*Stock*			*Surplus*			*Earnings*			*Income (Loss)*			*Total*
Balance, December 31, 2021	$	27,263	$	29,466		$	67,668		$	64,194		$	197		$	188,788
Vesting of restricted stock		—		407			(407	)		—			—			—
Stock based compensation expense		—		—			2,519			—			—			2,519
Common stock repurchased		—		(1,137	)		(5,781	)		—			—			(6,918	)
Dividends on preferred stock - ($0.47 per depositary share)		—		—			—			(2,156	)		—			(2,156	)
Dividends on common stock - ($0.25 per share)		—		—			—			(1,882	)		—			(1,882	)
Net income		—		—			—			26,674			—			26,674
Other comprehensive loss		—		—			—			—			(8,743	)		(8,743	)
Balance, December 31, 2022	$	27,263	$	28,736		$	63,999		$	86,830		$	(8,546	)	$	198,282
Cumulative change in accounting principle (Note 3)		—		—			—			(1,699	)		—			(1,699	)
Vesting of restricted stock		—		470			(470	)		—			—			—
Stock based compensation expense		—		—			2,491			—			—			2,491
Common stock repurchased		—		(8	)		(35	)		—			—			(43	)
Dividends on preferred stock - ($0.47 per depositary share)		—		—			—			(2,156	)		—			(2,156	)
Dividends on common stock - ($0.40 per share)		—		—			—			(3,011	)		—			(3,011	)
Net income		—		—			—			26,585			—			26,585
Other comprehensive gain		—		—			—			—			1,068			1,068
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		—		434			(434	)		—			—			—
Stock based compensation expense		—		—			2,838			—			—			2,838
Common stock repurchased		—		(166	)		(566	)		—			—			(732	)
Dividends on preferred stock - ($0.47 per depositary share)		—		—			—			(2,156	)		—			(2,156	)
Dividends on common stock - ($0.40 per share)		—		—			—			(3,046	)		—			(3,046	)
Net income (loss)		—		—			—			(9,980	)		—			(9,980	)
Other comprehensive gain (loss)		—		—			—			—			(233	)		(233	)
Balance, December 31, 2024	$	27,263	$	29,466		$	67,823		$	91,150		$	(7,711	)	$	207,991

See Notes to the Consolidated Financial Statements

Consolidated Statements of Cash Flows (Dollars in thousands)

Year Ended December 31,	*2024*			*2023*			*2022*
Cash Flows from Operating Activities
Net income (loss)	$	(9,980	)	$	26,585		$	26,674
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and accretion, net		3,683			2,268			2,083
Amortization of right-of-use assets		504			477			496
Amortization of intangible assets		447			—			—
Deferred income tax benefit		(4,528	)		(191	)		(894	)
Loss on sale of other real estate owned		—			—			4
Loss on valuation of other real estate owned		—			—			70
Loss on loans held for sale		—			—			168
Loss on New Market Tax Credit investment operations		—			251			—
Gain on disposal of premises and equipment		(99	)		(129	)		—
Realized (Gain) loss on securities (AFS/HTM)		48			—			(4	)
Provision for credit losses, net		6,763			1,642			2,398
Stock based compensation expense		2,838			2,491			2,519
Income from bank owned life insurance		(1,189	)		(1,069	)		(1,008	)
Subordinated debt amortization expense		397			397			328
Computer software intangible impairment		19,721			—			—
Change in:
Accrued interest receivable and other receivables		1,079			(2,803	)		(1,861	)
Other assets		(4,794	)		4,912			(22,407	)
Other liabilities		(150	)		(3,198	)		24,978
Net cash provided by operating activities		14,740			31,633			33,544
Cash Flows from Investing Activities
Activity in available-for-sale securities:
Payments		2,540			3,696			6,634
Maturities, sales, called, refunded		1,445			—			245,000
Purchases		(445	)		—			(226,215	)
Activity in held-to-maturity securities:
Purchases		(400	)		—			—
Maturities, called, refunded		1,520			265			2,595
Purchases of equity securities		(8,241	)		(4,174	)		(3,916	)
Purchases of restricted investment in bank stock		(1,624	)		(7,059	)		(9,123	)
Redemption of restricted investment in bank stock		1,425			10,425			4,125
Net increase in loan portfolio		(142,482	)		(128,025	)		(240,756	)
Proceeds from sale of other real estate owned		—			—			701
Proceeds from sale of loans		29,578			—			—
Proceeds from sale of premises and equipment		195			129			—
Purchases of premises and equipment		(909	)		(497	)		(1,125	)
Computer software developed		(4,880	)		(5,508	)		(6,656	)
Net cash used in investing activities		(122,278	)		(130,748	)		(228,736	)
Cash Flows from Financing Activities
Net increase (decrease) in non-interest deposits		(40,299	)		(186,084	)		20,012
Net increase in interest bearing demand, savings, and time deposits		261,966			359,322			80,914
Net increase (decrease) in Federal Home Loan Bank advances		—			(100,000	)		100,000
Net increase (decrease) in federal funds purchased		(15,000	)		15,000			—
Net increase in subordinated debt		—			—			42,623
Repurchase of common stock		(732	)		(43	)		(6,918	)
Cash dividends paid on preferred stock		(2,156	)		(2,156	)		(2,156	)
Cash dividends paid on common stock		(3,046	)		(3,011	)		(1,882	)
Net cash provided by financing activities		200,733			83,028			232,593
Increase (decrease) in Cash and Cash Equivalents, net		93,195			(16,087	)		37,401
Cash and Cash Equivalents, beginning of period		114,513			130,600			93,199
Cash and Cash Equivalents, end of period	$	207,708		$	114,513		$	130,600
Supplementary Disclosure of Cash Flow Information
Cash paid during the period for interest	$	70,893		$	45,534		$	12,639
Cash paid during the period for income taxes	$	1,275		$	7,280		$	6,381
Transfers from loans receivable to loans held for sale, at carrying value	$	—		$	—		$	715
Net unrealized gain (loss) on securities available-for-sale	$	(277	)	$	1,371		$	(11,373	)

See Notes to the Consolidated Financial Statements

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 principal activity is the ownership and management of MainStreet Bank. On May 18, 2016, the stockholders of MainStreet Bank (the “Bank”) approved a Reorganization Agreement and Plan of Share Exchange (“Reorganization”) whereby the Bank would reorganize into a holding company structure. The Plan of Share Exchange called for each outstanding share of Bank common stock to be automatically converted into and exchanged for one share of the Company’s common stock, and the common stockholders of the Bank would become the common stockholders of the Company on the effective date of the Reorganization. On July 15, 2016, the Reorganization became effective, and the Bank became a wholly-owned subsidiary of the Company. The holding company is regulated under the Bank Holding Company Act of 1956, as amended, and is subject to inspection, examination, and supervision by the Federal Reserve Board. On October 12, 2021, the Company filed an election with the Federal Reserve Board to be a financial holding company in order to engage in a broader range of financial activities than are permitted for bank holding companies generally. 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.

On April 18, 2019, the Company completed the registration of its common stock with the Securities Exchange Commission through its filing of a General Form for Registration of Securities on Form 10 (“Form 10”), pursuant to Section 12(b) of the Securities Exchange Act of 1934. The Company was considered to be an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the “JOBS Act,” and as defined in Section 2(a) of the Securities Act of 1933, as amended, or the “Securities Act,” through the quarter ended September 30, 2024. The Company is no longer considered an emerging growth company and will be an accelerated filer effective with this filing.

We were approved to list shares of our common stock on the Nasdaq Capital Market under our current symbol “MNSB” as of April 22, 2019. We were approved to list depositary shares of preferred stock on the Nasdaq Capital Market on the symbol “MNSBP” as of September 16, 2020. Each depositary share represents a 1/40^th interest in a share of 7.50% Series A Fixed-Rate Non-Cumulative Perpetual Preferred Stock.

In September 2021, MainStreet Bancshares, Inc. established MainStreet Community Capital, LLC, a wholly owned subsidiary, to be a community development entity (“CDE”). This CDE will be an intermediary vehicle for the provision of loans and investments in Low-Income Communities (“LICs”). In January 2022, the Community Development Financial Institutions Fund (“CDFI”) of the United States Department of the Treasury certified MainStreet Community Capital, LLC as a registered CDE. MainStreet Community Capital's primary business objective will be to apply for and receive New Market Tax Credit ("NMTC") allocations that are awarded and distributed annually.

On October 25, 2021, MainStreet Bancshares, Inc. formally introduced Avenu, a division of MainStreet Bank. Avenu provides an embedded Banking as a Service (BaaS) solution that connects our partners (fintechs, application developers, money movers, and entrepreneurs) directly and seamlessly to our Software as a Service (SaaS) solution. Our SaaS software program was deployed in October 2024. Refer to Note 8 for additional information around the computer software intangible asset. The Avenu division is classified within our Financial Technology reportable segment outlined in Note 26. Additional information can be found in our investor presentations filed quarterly.

MainStreet Bank is headquartered in Fairfax, Virginia where it also operates a branch. 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 Bank of Richmond. 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 individuals, and small and medium-sized businesses and professionals in the Washington, D.C. metropolitan area.

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”).

Principles of Consolidation – The consolidated financial statements include accounts of the Company and its wholly-owned subsidiaries, the Bank and MainStreet Community Capital, LLC. All significant intercompany transactions and balances have been eliminated in consolidation.

Cash and cash equivalents – For the purpose of presentation in the Consolidated Statements of Cash Flows, the Bank has defined cash and cash equivalents as those amounts included in the statement of financial condition captions “Cash and due from banks” and “Federal funds sold.”

Investment securities – The Bank’s investment debt securities are classified as either held-to-maturity, available-for-sale, or trading. At December 31, 2024 and December 31, 2023, the Bank held approximately $16.1 million and $17.3 million, respectively, in securities classified as held-to-maturity. The Bank held no securities classified as trading.

Debt securities which are not classified as held-to-maturity or trading are classified as securities available-for-sale (AFS). Debt securities available-for-sale are reported at fair value. Any unrealized gain or loss, net of applicable income taxes, is reported as a separate addition to or reduction from stockholders’ equity. Gains and losses arising from the sale of debt securities available-for-sale are recognized based on the specific identification method on a trade-date basis and included in results of operations. Debt securities held-to-maturity includes securities purchased with the ability and positive intent to hold to maturity. Debt securities are stated at historical cost adjusted for amortization of premiums and accretion of discount, and net of any allowance for credit losses.

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

Allowance for Credit Losses - Held-to-Maturity Securities - The Company measures expected credit losses on held-to-maturity (HTM) securities on an individual basis. Accrued interest receivable on these securities are excluded from the estimate of credit losses. For HTM securities, the Company evaluates the credit risk of its securities on at least a quarterly basis. The 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 Company's HTM securities ACL was immaterial at December 31, 2024.

Allowance for Credit Losses - Available-for-Sale Securities - For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before the recovery of its amortized cost basis. If either criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value with a charge to current operations. For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Restricted Equity Securities - Restricted equity securities consist of the Federal Reserve Bank and Federal Home Loan Bank of Atlanta (“FHLB”) stock in the amount of $5.3 million and $1.4 million respectively, as of December 31, 2024, compared to $5.2 million and $1.3 million, respectively, as of December 31, 2023. Restricted equity securities also consisted of $126,800 in Community Bankers Bank stock at December 31, 2024 and December 31, 2023. This restricted stock is recorded at cost because its ownership is restricted and it lacks a market for resale. The Bank is required to maintain Federal Reserve Bank stock at a level of 6% of capital and surplus. The FHLB requires the Bank to maintain stock, at a minimum, in an amount equal to 4.5% of outstanding borrowings and 0.20% of total assets. When evaluating restricted stock for impairment, its value is based on ultimate recoverability of the par value rather than by recognizing temporary declines in value. The Bank does not consider these investments to be impaired at December 31, 2024 or December 31, 2023 and no previous impairment has been recognized as of December 31, 2024. Restricted equities include $7.6 million in Low-Income Housing Tax Credits (“LIHTC”) and $9.4 million of New Market Tax Credits ("NMTC") that are both carried at amortized cost through the proportional amortization method. Restricted equities also include $6.7 million of nonmarketable securities as of December 31, 2024 that do not qualify for equity method accounting. As of December 31, 2023 restricted equities include $8.2 million in LIHTC, $3.1 million in NMTC, and $6.4 million of nonmarketable securities that do not qualify for equity method accounting. These investments are recorded at cost because the ownership is restricted and lacks a market for resale.

Loans - The Bank makes commercial and consumer loans to customers. Our recorded investment in loans that management has the intent and ability to hold for the foreseeable future, or until maturity or pay-off, generally are reported at their unpaid principal balances adjusted for charge-offs, unearned discounts, any deferred fees or costs on originated loans, and the allowance for credit losses on loans. Interest on loans is credited to operations based on the principal amount outstanding. Loan fees and origination costs are deferred and the net amount is amortized as an adjustment of the related loan’s yield using the effective interest method. The Bank is amortizing these amounts over the contractual life of the related loans.

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. Commercial loans are generally placed on nonaccrual status when the collection of principal or interest is 90 days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength of the borrower. Consumer loans are generally placed on nonaccrual status when the collection of principal or interest is 120 days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength of the borrower. Loans greater than 90 days past due may remain on accrual status if management determines it has adequate collateral to cover the principal and interest. For those loans that are carried on nonaccrual status, payments are first applied to principal outstanding. A loan may be returned to accrual status if the borrower has demonstrated a sustained period of repayment performance in accordance with the contractual terms of the loan and there is reasonable assurance the borrower will continue to make payments as agreed. It is Bank policy to charge-off loans whose collectability is sufficiently questionable and can no longer be justified as an asset on the statement of financial condition. To determine if a loan should be charged-off, all possible sources of repayment are analyzed, including: (1) the potential for future cash flow, (2) the value of the Bank’s collateral, and (3) the strength of co-makers or guarantors. All principal and previously accrued interest is charged to the allowance for credit losses. All future payments received on the loan are credited to the allowance for credit losses as a recovery. These policies are applied consistently across our loan portfolio.

The Company designates individually evaluated loans on nonaccrual status as collateral-dependent loans, as well as other loans that management of the Company designates as having differing risk. Collateral-dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses. Under CECL, for collateral-dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.

Allowance for Credit Losses

On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by the lessor in accordance with Topic 842 on leases. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such changes is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities management does not intend to sell or believes that is more likely than not they will be required to sell.

The Company adopted ASC 326 and all the subsequent amendments thereto effective January 1, 2023 using the modified retrospective method for all financial assets measured at amortized cost, and off-balance-sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior periods amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net decrease to retained earnings of $1.7 million as of January 1, 2023 for the cumulative effect of adopting ASC 326. The transition adjustment includes an increase in allowance for credit losses of $2.2 million and an increase in net deferred tax assets of $506,000.

The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2023. As of December 31, 2022, the Company did not have any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, the Company determined that an allowance for credit losses on available-for-sale securities was not deemed material.

The following table illustrates the impact of ASC 326.

	*January 1, 2023*

*(Dollars in thousands)*	*As Reported Under ASC 326*		*Pre-ASC 326 Adoption*		*Impact of ASC 326 Adoption*
Assets:
Allowance for Credit Losses
Residential Real Estate	$	2,205	$	2,146	$	59
Commercial Real Estate		7,773		7,159		614
Construction and Land Development		3,366		3,347		19
Commercial & Industrial		1,590		1,418		172
Consumer		75		44		31
Total Allowance for Credit Losses on Loans	$	15,009	$	14,114	$	895
Liabilities:
Allowance for Credit Losses Off-Balance Sheet Credit Exposure		1,310		—		1,310
Total Allowance for Credit Losses	$	16,319	$	14,114	$	2,205

The Company elected not to measure an allowance for credit losses for accrued interest receivable and instead elected to reverse interest income on loans or securities that are placed on nonaccrual status, which is generally when the instrument is 90 days past due, or earlier if the Company believes the collection of interest is doubtful. The Company has concluded that this policy results in the timely reversal of uncollectible interest.

Allowance for Credit Losses - Loans - The allowance for credit losses on loans is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off. Accrued interest receivable is excluded from the estimate of credit losses.

The allowance for credit losses represents management's estimate of lifetime credit losses inherent in the loans as of the balance sheet date. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency levels, concentrations or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values or vacancy rates, consumer price index and projected federal funds target rate and future unemployment rates.

The allowance for credit losses on loans is measured on a collective (pool) basis when similar risk characteristics exist. The Company has identified the following portfolio segments and measures the allowance for credit losses on loans using the following methods: Portfolio segments are grouped in homogenous pools that mirror the loan pools described in Federal Financial Institutions Examination Council Call Report however we are able to group these pools into the following segments:

•	Commercial real estate loans carry risks of the client’s ability to repay the loan from the cash flow derived from 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. Real estate security diminishes risks only to the extent that a market exists for the subject collateral. These risks are attempted to be mitigated by carefully underwriting loans of this type and by following appropriate loan-to-value standards
•	Construction and land development loans carry risks that the project will not be finished according to schedule, the project will not be finished according to budget and the value of the collateral may, at any point in time, be less than the principal amount of the loan. Construction loans also bear the risk that the general contractor, who may or may not be a loan customer, may be unable to finish the construction project as planned because of financial pressure unrelated to the project.
•	Residential real estate mortgage loans, including equity lines of credit, carry risks associated with the continued creditworthiness of the borrower and the changes in the value of the collateral.
•	Commercial and industrial loans carry risks associated with the successful operation of a business or a real estate project, in addition to other risks associated with the ownership of real estate, because the repayment of these loans may be dependent upon the profitability and cash flows of the business or project. In addition, there is risk associated with the value of collateral other than real estate which may depreciate over time and cannot be appraised with as much precision.
•	Consumer secured loans (indirect lending) carry risks associated with the continued creditworthiness of the borrower and the value of the collateral (e.g., rapidly depreciating assets such as automobiles). These risks are attempted to be mitigated by following appropriate loan-to-value standards and an experienced management team for this type of portfolio.
•	Consumer unsecured loans carry risks associated with the continued credit-worthiness of the borrower. Consumer unsecured loans are more likely to be immediately adversely affected by job loss, divorce, illness or personal bankruptcy.

For each homogenous loan pool, the Company elected to use the Weighted Average Remaining Life (“WARM”) methodology for calculating historical and future loss reserves. The WARM methodology calculates the average annual historical charge-off rate of a homogenous loan pool and multiplies that rate by the pool's remaining life to estimate the allowance for credit losses. Quantitative assumptions included are below:

Remaining life - For amortizing assets, the remaining life is calculated by taking the contractual life and adjusting it by any expected scheduled payments as well as prepayments. An important assumption in the calculation of remaining life is an “exit event” which would be deemed as the end of life of a loan. Examples of exit events included in our model are: 1). A change in maturity date of 90 days or more and 2). A loan changing its loan pool classification.

Loss Rate - Loss rates are calculated quarterly and aggregated to determine an annual loss rate. Our methodology uses actual Company data utilizing a straight average over the time periods included. Recoveries are netted against charge-offs and loss rates are floored at 0% with no ability to have “negative” loss rates.

Loss Rate Lookback - By utilizing the WARM method, management is also evaluating future economic conditions. Using historical loan portfolio performance data in certain economic conditions, gives us an idea of how to adjust for potential credit exposure in similar future environments. While subject to change at each quarterly meeting, we have elected to make our base case scenario for future economic environments. This evaluation will be subject to change given the circumstances evaluated at each quarter.

Historical Losses - Quantitative loss estimation models have been developed based largely on call report data from 2004 through the current period and the economic conditions during the same time period. Within our historical losses calculation, the Company projects out the loss environment for the subsequent two quarters, based largely on the preceding twelve quarters. After that period, the historical loss percentage reverts back to the lifetime historical mean over a four quarter progression.

Additionally, the allowance for credit losses on loans calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or reduce reserve levels and include adjustments for lending management experience and risk tolerance, loan review and audit results, asset quality and portfolio trends, loan portfolio growth, industry concentrations, trends in underlying collateral, external factors and economic conditions not already captured.

Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting date unadjusted for selling costs as appropriate.

Other Real Estate Owned (“OREO”) - Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less costs to sell at the date of foreclosure, establishing a new cost basis. Any required initial write-downs are charged to allowance for credit losses. Subsequent to foreclosure, management periodically performs valuations of the foreclosed assets based on updated appraisals, general market conditions, and recent sales of like properties, length of time the properties have been held and our ability and intention with regard to continued ownership of the properties. The Bank may incur additional write-downs of foreclosed assets to fair value less costs to sell if valuations indicate a further deterioration in market values. Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets and improvements are capitalized.

Interest income on loans – Interest on loans is accrued and credited to income on daily balances of the principal amount outstanding. The accrual of interest on loans is discontinued when, in the opinion of management, there is an indication that the borrower may be unable to meet payments as they become due. Upon such discontinuance, all unpaid accrued interest is reversed.

Generally, the Bank will return a loan to accrual status when all delinquent interest and principal becomes current and remains current for six consecutive months under the terms of the loan agreement or the loan is well-secured or in process of collection. Upon returning to accrual status, interest payments applied to the principal balance of a loan while in nonaccrual status are recognized as a yield adjustment over the remaining life.

Loan origination and commitment fees and certain related direct costs - Loan origination and commitment fees charged by the Bank and certain direct loan origination costs are deferred and the net amount is amortized as a yield adjustment. The Bank amortizes these net amounts over the life of the related loans or, in the case of demand loans, over the estimated life. Net fees related to standby letters of credit are recognized over the commitment period.

Premises and equipment – Land is carried at cost. Premises and equipment are stated at cost, less accumulated depreciation and amortization computed principally on the straight-line basis over the estimated useful life of each asset, which ranges from 3 to 39 years. Leasehold improvements are amortized over the shorter of the related lease term or the estimated useful lives of the improvements. Construction in progress includes assets which will be reclassified and depreciated once placed into service.

Computer software development - The Company capitalizes new product development costs incurred for software to be sold from the point at which technological feasibility has been established through the point at which the product is ready for general availability. Software development costs that are capitalized are evaluated annually for impairment and are assigned an estimated economic life based on the type of product, market characteristics, and maturity of the market for that particular product. These costs are amortized on a straight-line basis. All of this amortization expense is included within components of operating income.

During the three months ended December 31, 2024, Management performed the annual impairment assessment and determined that a triggering event had occurred. The resulting calculations indicated that the fair value did not exceed the carrying amount of the Company's computer software intangible which resulted in a determination that the intangible had become fully impaired. The impairment charge of $19.7 million reduced fully the carrying value of the Company's intangible asset of $19.1 million and the related prepaid asset of $631,000, consisting of the enhanced value of cloud development expenses.

Income taxes – The Bank uses an asset and liability approach in financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. The principal items relate primarily to differences between the allowance for credit losses, deferred loan fees, and accumulated depreciation and amortization. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense (benefit) is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. As of December 31, 2024, and December 31, 2023, there were no such liabilities recorded.

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

Comprehensive income – Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although, certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

Stock compensation plans – Stock compensation accounting guidance (FASB ASC 718, “Compensation – Stock Compensation”) requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the grant date fair value of the equity or liability instruments issued.

The stock compensation accounting guidance requires that compensation cost for all stock awards be calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. A Black-Sholes model is used to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards. No stock options were granted during 2024 and 2023.

Earnings per common share – Earnings per common share has been determined under the provisions of FASB ASC 260, “Earnings Per Share” and has been computed based on the weighted average common shares outstanding during the year ended December 31, (7,606,391 for 2024, 7,522,913 for 2023, and 7,529,382 for 2022). Diluted earnings per share reflect additional potential common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.

The only potential dilutive stock of the Bank as defined in FASB ASC 260 would be stock options granted to various directors, officers, and employees of the Bank. There were no such options outstanding during the years ended December 31, 2024, 2023, or 2022. Restricted stock is included in the computation of basic earnings per share as the holder is entitled to full benefits of a stockholder during the vesting period and is thus considered a participating security.

Off-balance sheet instruments – In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded, or related fees are incurred or received.

Allowance for Credit Losses - Off-Balance Sheet Credit Exposures - The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted through credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The Company classified off-balance sheet exposure in similar pools as the funded loan portfolio and determined that qualitative and quantitative risk factors assessed to the funded loan pool are also evident for the unfunded loan pool of similar type, adjusted for likelihood of funding and any other relevant metrics. The allowance for unfunded commitments is identified separately on the Company’s consolidated statement of financial condition.

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

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

The Company’s critical accounting policies relate to (1) the allowance for credit losses, (2) fair value of financial instruments, and (3) derivative financial instruments. These critical accounting policies require the use of estimates, assumptions and judgments which are based on information available as of the date of the financial statements. Accordingly, as this information changes, future financial statements could reflect the use of different estimates, assumptions and judgments. Certain determinations inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. In connection with the determination of the allowances for credit losses on loans, management obtains independent appraisals for significant properties.

Fair value of financial instruments – Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 20. Fair value estimates involve uncertainties and matters of significant judgment. Changes in assumptions or in market conditions could significantly affect the estimates.

Derivative Financial Instruments – The Bank recognizes derivative financial instruments at fair value as either an other asset or other liability in the consolidated statement of financial condition. The Bank’s derivative financial instruments include interest rate swaps with certain qualifying commercial loan customers and dealer counterparties. Because the interest rate swaps with loan customers and dealer counterparties are not designated as hedging instruments, adjustments to reflect unrealized gains and losses resulting from changes in fair value of these instruments are reported as noninterest income or noninterest expense, as applicable. The Bank’s interest rate swaps with loan customers and dealer counterparties are described more fully in Note 19.

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

Revenue Recognition - Most revenue associated with the Company’s financial instruments, including interest income and gains/losses on investment securities, derivatives and sales of financial instruments are outside the scope of ASC Topic 606. The Company’s services that fall within the scope of ASC Topic 606 are presented within noninterest income and are recognized as revenue. A description of the primary revenue streams accounted for under ASC Topic 606 follows:

Deposit Account Service Charges. The Company earns fees from its deposit customers for overdraft and account maintenance services. Overdraft fees are recognized when the overdraft occurs. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the company satisfies the performance obligation.

Other Service Charges and Fees. The Company earns fees from its customers for transaction-based services. Such services include safe deposit box, ATM, stop payment, wire transfer, mortgage origination and interest rate swap fees. In each case, these service charges and fees are recognized in income at the time or within the same period that the Company’s performance obligation is satisfied.

Interchange Income. The Company earns interchange fees from debit and credit cardholder transactions conducted through various payment networks. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services.

Recently Adopted Accounting Developments

On March 29, 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” These amendments 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 was 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. 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.

In November 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." The amendments in this ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosure about significant segment expenses. This ASU requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (CODM), an amount for other segment items by reportable segment and a description of its composition, all annual disclosures about a reportable segment profit or loss and assets currently required by FASB ASU Topic 280 in interim periods, and the title and position of the CODM and how the CODM uses the reportable measures. Additionally, this ASU requires that at least one of the reportable segment profit and loss measures should be the measure that is most consistent with the measurement principals used in an entity's consolidated financial statements. Lastly, this ASU requires public business entities with a single reportable segment to provide all disclosures required by these amendments in this ASU and all existing segment disclosures in Topic 280. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retroactively. On December 31, 2024, the Company adopted ASU 2023-07. Refer to Note 26 for updated disclosures due to the adoption of ASU 2023-07.

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. The 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 2024-01, “Compensation – Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards”. This ASU provides an illustrative example intended to demonstrate how entities that account for profits interest and similar awards would determine whether a profits interest award should be accounted for in accordance with Topic 718. This ASU is effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. Early adoption is permitted. If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the annual period that includes that interim period. Transition can be done either retrospectively or prospectively. The Company does not expect the adoption of ASU 2024-01 to have a material impact on its consolidated financial statements.

In 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 November 2024, the Financial Accounting Standards Board (FASB) issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires public companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. The FASB subsequently issued ASU 2025-01, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date”, which amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in ASU 2024-03 in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU 2024-03 is permitted. Implementation of ASU 2024-03 may be applied prospectively or retrospectively. The Company does not expect the adoption of ASU 2024-03 to have a material impact on its consolidated financial statements.

Note 2. Restrictions on Cash

On March 15, 2020, the Federal Reserve reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions. Prior to the change, reserve requirement ratios on net transactions accounts differed based on the amount of net transactions accounts at the depository institution.

A certain amount of net transaction accounts, known as the "reserve requirement exemption amount," was subject to a reserve requirement ratio of zero percent. Net transaction account balances above the reserve requirement exemption amount and up to a specified amount, known as the "low reserve tranche," were subject to a reserve requirement ratio of 3 percent. Net transaction account balances above the low reserve tranche were subject to a reserve requirement ratio of 10 percent. The reserve requirement exemption amount and the low reserve tranche are indexed each year pursuant to formulas specified in the Federal Reserve Act.

Note 3. Investment Securities

Investment securities available-for-sale was comprised of the following:

	*December 31, 2024*
*(Dollars in thousands)*	*Amortized Cost*		*Gross Unrealized Gains*		*Gross Unrealized Losses*			*Fair Value*
Collateralized Mortgage Backed	$	21,298	$	—	$	(4,105	)	$	17,193
Subordinated Debt		8,971		—		(1,064	)		7,907
Preferred Stock		453		—		—			453
Municipal Securities
Taxable		10,623		—		(2,422	)		8,201
Tax-exempt		22,024		—		(2,403	)		19,621
U.S. Governmental Agencies		2,392		4		(24	)		2,372
Total	$	65,761	$	4	$	(10,018	)	$	55,747

Investment securities held-to-maturity was comprised of the following:

	*December 31, 2024*
*(Dollars in thousands)*	*Amortized Cost*		*Gross Unrealized Gains*		*Gross Unrealized Losses*			*Fair Value*
Municipal Securities
Tax-exempt	$	13,578	$	1	$	(200	)	$	13,379
Subordinated Debt		2,500		—		(14	)		2,486
Total	$	16,078	$	1	$	(214	)	$	15,865

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

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 December 31, 2024. 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 December 31, 2024 and December 31, 2023 by security type and credit rating according to Moody's and Standard and Poor's:

*(Dollars in thousands)*	*Municipal Securities*		*Subordinated Debt*		*Total HTM securities*
December 31, 2024
Credit Rating:
AAA/AA/A	$	13,578	$	—	$	13,578
Not Rated - Non Agency		—		2,500	$	2,500
Total	$	13,578	$	2,500	$	16,078
December 31, 2023
Credit Rating:
AAA/AA/A	$	14,775	$	—	$	14,775
Not Rated - Non Agency		—		2,500		2,500
Total	$	14,775	$	2,500	$	17,275

At December 31, 2024, the Company had no securities held-to-maturity that were past due 30 days or more as to principal or interest payments. The Company had no securities held-to-maturity classified as nonaccrual for the year ended December 31, 2024, 2023, or 2022.

The scheduled maturities of securities available-for-sale and held-to-maturity at December 31, 2024 were as follows:

	*December 31, 2024*
	*Available-for-Sale*				*Held-to-Maturity*
*(Dollars in thousands)*	*Amortized Cost*		*Fair Value*		*Amortized Cost*		*Fair Value*
Due in one year or less	$	1,000	$	993	$	370	$	370
Due from one to five years		—		—		4,017		3,973
Due from after five to ten years		14,430		12,997		5,945		5,886
Due after ten years		50,331		41,757		5,746		5,636
Total	$	65,761	$	55,747	$	16,078	$	15,865

Securities with a fair value of $394,000 and $16.1 million at December 31, 2024 and December 31, 2023, respectively, were pledged as collateral to secure public funds, loans swaps, and funding through the bank term funding program. The Company has not drawn upon or utilized the bank term funding program.

As of December 31, 2024 and December 31, 2023, there were no holdings of securities of any one issuer in an amount greater than 10% of stockholders' equity.

There were no securities sold from the available-for-sale portfolio during the years ended December 31, 2024, 2023, and 2022.

The following tables summarize the fair value and unrealized losses at December 31, 2024 and December 31, 2023, aggregated by investment category and length of time that individual securities have been in a continuous loss position:

	*December 31, 2024*
	*Less than 12 Months*					*12 Months or Longer*					*Total*
*(Dollars in thousands)*	*Estimated Fair Value*		*Unrealized Loss*			*Estimated Fair Value*		*Unrealized Loss*			*Estimated Fair Value*		*Unrealized Loss*
Available-for-sale:
Collateralized Mortgage Backed	$	—	$	—		$	17,105	$	(4,105	)	$	17,105	$	(4,105	)
Subordinated Debt		215		(35	)		7,191		(1,029	)		7,406		(1,064	)
Municipal Securities
Taxable		—		—			8,201		(2,422	)		8,201		(2,422	)
Tax-exempt		2,658		(36	)		16,593		(2,367	)		19,251		(2,403	)
U.S Governmental Agencies		—		—			614		(24	)		614		(24	)
Total	$	2,873	$	(71	)	$	49,704	$	(9,947	)	$	52,577	$	(10,018	)

	*December 31, 2023*
	*Less than 12 Months*					*12 Months or Longer*					*Total*
*(Dollars in thousands)*	*Fair Value*		*Unrealized Loss*			*Fair Value*		*Unrealized Loss*			*Fair Value*		*Unrealized Loss*
Available-for-sale:
Collateralized Mortgage Backed	$	—	$	—		$	19,440	$	(3,931	)	$	19,440	$	(3,931	)
Subordinated Debt		—		—			7,717		(1,503	)		7,717		(1,503	)
Municipal Securities
Taxable		—		—			8,307		(2,342	)		8,307		(2,342	)
Tax-exempt		1,986		(34	)		16,510		(1,915	)		18,496		(1,949	)
U.S Government Agencies		1,515		(1	)		845		(37	)		2,360		(38	)
Total	$	3,501	$	(35	)	$	52,819	$	(9,728	)	$	56,320	$	(9,763	)

The factors considered in evaluating securities for impairment include whether the Bank intends to sell the security, whether it is more likely than not that the Bank will be required to sell the security before recovery of its amortized cost basis, and whether the Bank expects to recover the security’s entire amortized cost basis. These unrealized losses are primarily attributable to current financial market conditions for these types of investments, particularly changes in interest rates, causing bond prices to decline, and are not attributable to credit deterioration.

At December 31, 2024, there were five tax-exempt municipal securities with a fair value of $2.7 million and one subordinated debt security with a fair value of $215,000 in an unrealized loss position of less than 12 months. At December 31, 2024, there were six U.S. government agencies with fair values totaling approximately $614,000, twenty-two collateralized mortgage backed securities with a fair value totaling $17.1 million, nineteen subordinated debt securities with fair values of $7.2 million, eleven taxable municipal securities with a fair value of $8.2 million, and twenty-eight tax-exempt municipal securities with a fair value of $16.6 million that were in an unrealized loss position of more than 12 months. There were no securities sold during 2024, 2023, or 2022.

All municipal securities originally purchased as available-for-sale were transferred to held-to-maturity during 2013. The unrealized loss on the securities transferred to held-to-maturity is being amortized over the expected life of the securities. The unamortized, unrealized loss, before tax, at December 31, 2024 and December 31, 2023 was $0, respectively.

For held-to-maturity securities, an allowance for credit losses is required to absorb estimated lifetime credit losses. The Company has assessed the risk of credit loss and has determined that no allowance for credit losses for held-to-maturity securities was necessary as of December 31, 2024 and 2023. The evaluation of credit risk includes consideration of the credit ratings of the issuers, the effects of interest rate changes since purchase and observable market information such as issuer-specific credit spreads.

The Company periodically invests in New Market Tax Credit (NMTC) opportunities, related primarily to certain community development projects. The Company receives tax credits related to these investments, for which the Company typically acts as a limited partner and therefore does not exert control over the operating or financial policies of the partnerships. These tax credits are subject to recapture by taxing authorities based on compliance features required to be met at the project level. On January 1, 2024, the Company transitioned from the equity method of accounting and began applying the proportional amortization method of accounting to its qualifying new markets tax credit investments in addition to its low income housing tax credit partnerships already subject to the proportional amortization method. At December 31, 2024 and 2023, the balance of the investments in new market tax credits was $9.4 million and $3.1 million. These balances are reflected in the restricted securities at amortized cost line on the consolidated statements of financial condition. During the years ended December 31, 2024, 2023, and 2022, the Company recognized amortization expense of $911,000, $0, and $0, respectively, which was included within the income tax expense (benefit) line item on the consolidated statements of income (loss) and the depreciation, amortization, and accretion, net line item on the consolidated statements of cash flows.

Note 4. Loans Receivable

Loans receivable were comprised of the following:

*(Dollars in thousands)*	*December 31, 2024*			*December 31, 2023*
Residential Real Estate:
Single family	$	204,357		$	203,417
Multifamily		234,884			271,040
Farmland		240			145
Commercial Real Estate:
Owner-occupied		357,724			282,052
Non-owner occupied		560,056			461,775
Construction and Land Development		393,385			429,637
Commercial – Non Real-Estate:
Commercial & industrial		82,778			75,415
Consumer – Non Real Estate:
Unsecured		343			271
Secured		1,231			3,339
Total Gross Loans		1,834,998			1,727,091
Less: unearned fees		(4,992	)		(5,448	)
Less: allowance for credit losses on loans		(19,450	)		(16,506	)
Net Loans	$	1,810,556		$	1,705,137

The unsecured consumer loans above include $343,000 and $271,000 of overdrafts reclassified as loans as of December 31, 2024 and December 31, 2023, respectively.

There were nonaccrual loans of $21.7 million and $1.0 million as of December 31, 2024 and December 31, 2023, respectively.

The following tables present the segments of the loan portfolio summarized by aging categories as of December 31, 2024 and December 31, 2023:

	*December 31, 2024*
*(Dollars in thousands)*	*30-59 Days Past Due*		*60-89 Days Past Due*		*Greater than 90 Days Past Due and Still Accruing*		*Nonaccrual*		*Current Loans*		*Total Loans Receivable*
Residential Real Estate:
Single Family	$	—	$	62	$	—	$	1,162	$	203,133	$	204,357
Multifamily		—		—		—		—		234,884		234,884
Farmland		—		—		—		—		240		240
Commercial Real Estate:
Owner occupied		—		—		—		—		357,724		357,724
Non-owner occupied		—		—		—		11,160		548,896		560,056
Construction & Land Development		—		—		—		4,235		389,150		393,385
Commercial – Non Real Estate:
Commercial & industrial		—		—		—		5,093		77,685		82,778
Consumer – Non Real Estate:
Unsecured		—		—		—		—		343		343
Secured		—		—		—		—		1,231		1,231
Total	$	—	$	62	$	—	$	21,650	$	1,813,286	$	1,834,998

	*December 31, 2023*
*(Dollars in thousands)*	*30-59 Days Past Due*		*60-89 Days Past Due*		*Greater than 90 Days Past Due and Still Accruing*		*Nonaccrual*		*Current Loans*		*Total Loans Receivable*
Residential Real Estate:
Single Family	$	—	$	—	$	—	$	149	$	203,268	$	203,417
Multifamily		—		—		—		—		271,040		271,040
Farmland		—		—		—		—		145		145
Commercial Real Estate:
Owner occupied		—		—		—		—		282,052		282,052
Non-owner occupied		—		—		—		—		461,775		461,775
Construction & Land Development		—		—		—		—		429,637		429,637
Commercial – Non Real Estate:
Commercial & industrial		—		—		—		851		74,564		75,415
Consumer – Non Real Estate:
Unsecured		—		—		—		—		271		271
Secured		25		—		4		—		3,310		3,339
Total	$	25	$	—	$	4	$	1,000	$	1,726,062	$	1,727,091

Note 5. Allowance for Credit Losses

The following tables summarize the activity in the allowance for credit losses by loan class for the twelve months ended December 31, 2024, 2023, and 2022:

Allowance for Credit Losses By Portfolio Segment

For the twelve months ended December 31, 2024

	*Real Estate*
	*Residential*			*Commercial*			*Construction*			*Commercial*			*Consumer*			*Total*
Beginning Balance	$	2,594		$	8,888		$	3,575		$	1,435		$	14		$	16,506
Charge-offs		(132	)		(740	)		(3,684	)		(4	)		(9	)		(4,569	)
Recoveries		—			—			—			19			9			28
Provision (recovery)		16			3,173			4,757			(457	)		(4	)		7,485
Ending Balance	$	2,478		$	11,321		$	4,648		$	993		$	10		$	19,450

Allowance for Credit Losses By Portfolio Segment

For the twelve months ended December 31, 2023

	*Real Estate*
	*Residential*		*Commercial*		*Construction*		*Commercial*			*Consumer*			*Total*
Beginning Balance, prior to adoption of ASC 326	$	2,146	$	7,159	$	3,347	$	1,418		$	44		$	14,114
Impact of adopting ASC 326		59		614		19		172			31			895
Charge-offs		—		—		—		(462	)		(6	)		(468	)
Recoveries		7		—		—		—			15			22
Provision (recovery)		382		1,115		209		307			(70	)		1,943
Ending Balance	$	2,594	$	8,888	$	3,575	$	1,435		$	14		$	16,506

Allowance for Loan Losses By Portfolio Segment

For the twelve months ended December 31, 2022

	*Real Estate*
	*Residential*		*Commercial*		*Construction*		*Commercial*			*Consumer*			*Total*
Beginning Balance	$	1,672	$	5,689	$	2,697	$	1,540		$	99		$	11,697
Charge-offs		—		—		—		—			19			19
Recoveries		—		—		—		—			—			—
Provision (recovery)		474		1,470		650		(122	)		(74	)		2,398
Ending Balance	$	2,146	$	7,159	$	3,347	$	1,418		$	44		$	14,114

Individually evaluated for Impairment	$	—	$	—	$	—	$	—		$	—		$	—
Collectively evaluated for Impairment	$	2,146	$	7,159	$	3,347	$	1,418		$	44		$	14,114

The Company maintains a general allowance for credit losses based on evaluating known and inherent risks in the loan portfolio, including management’s continuing analysis of the factors underlying the quality of the loan portfolio. These factors include changes in the size and composition of the loan portfolio, actual loan loss experience, and current and anticipated economic conditions. The reserve is an estimate based upon factors and trends identified by management at the time the financial statements are prepared.

The following table is a summary of the Company’s nonaccrual loans by major categories for the periods indicated.

	*CECL*
	*December 31, 2024*
*(Dollars in thousands)*	*Nonaccrual Loans with No Allowance*		*Nonaccrual Loans with an Allowance*		*Total Nonaccrual Loans*
Residential Real Estate:
Single Family	$	1,162	$	—	$	1,162
Commercial Real Estate:
Non-owner occupied		11,160		—		11,160
Construction and Land Development		4,235		—		4,235
Commercial & industrial		5,093		—		5,093
Total	$	21,650	$	—	$	21,650

	*CECL*
	*December 31, 2023*
*(Dollars in thousands)*	*Nonaccrual Loans with No Allowance*		*Nonaccrual Loans with an Allowance*		*Total Nonaccrual Loans*
Residential Real Estate:
Single Family	$	149	$	—	$	149
Commercial & industrial		851		—		851
Total	$	1,000	$	—	$	1,000

The Company recognized $2.8 million and $57,792 of interest income on nonaccrual loans during the year ended December 31, 2024 and 2023.

The following table represents the accrued interest receivables written off by reversing interest income during the year ended December 31, 2024 and 2023:

	*For the Years Ended December 31,*
*(Dollars in thousands)*	*2024*		*2023*
Residential Real Estate:
Single Family	$	103	$	5
Multifamily		176		—
Commercial Real Estate:
Non-owner occupied		481		—
Construction & Land Development		965		—
Commercial – Non Real Estate:
Commercial & industrial		180		128
Total	$	1,905	$	133

The Company has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following provides more detail about the types of collateral that secure collateral-dependent loans:

•	Commercial real estate loans can be secured by either owner-occupied commercial real estate or non-owner-occupied investment commercial real estate. Typically, owner-occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies. Non-owner-occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate where our borrower is the lessor.
•	Residential real estate mortgage loans, including equity lines of credit, are typically secured by first mortgages, and in some cases could be secured by a second mortgage.
•	Home equity lines of credit are generally secured by second mortgages on residential real estate property.
•	Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property. Some consumer loans are unsecured and have no underlying collateral.
•	Construction and land development loans are secured by real property where loan funds will be used to acquire land and to construct or improve appropriately zoned real property for the creation of income producing or owner-user commercial properties.

The following table details the amortized cost of collateral dependent loans:

*(Dollars in thousands)*	*As of December 31, 2024*		*As of December 31, 2023*
Residential Real Estate:
Single Family	$	5,494	$	346
Multifamily		3,206		—
Commercial Real Estate:
Owner occupied		—		1,120
Non-owner occupied		11,488		—
Construction & Land Development		28,608		—
Commercial & industrial		8,877		851
Total	$	57,673	$	2,317

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a weighted average remaining life model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain loans. When principal forgiveness is provided, the amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.

The following table shows the amortized cost basis as of December 31, 2024 of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of loans and type of concession granted and describes the financial effect of the modifications made to borrowers experiencing financial difficulty during the twelve-month period ended December 31, 2024:


	*December 31, 2024*
*(Dollars in thousands)*	*Amortized Cost Basis*		*% of Total Loan Type*			*Financial Effect*
Residential Real Estate:
Single Family		3,813		1.9	%	Extended term on interest only payments for six months. Deferred loan payment for three months.
Multifamily		9,570		4.1	%	Interest rate reduction.
Construction and Land Development		31,153		7.9	%	Interest rate reduction and extended term on interest only payments for two years. Extended amortization term for five years. Extended term on interest only payments for six months.
Commercial – Non Real-Estate:
Commercial & industrial		3,998		4.8	%	Extended term on interest only payments for seven months
Total	$	48,534


	*December 31, 2023*
*(Dollars in thousands)*	*Amortized Cost Basis*		*% of Total Loan Type*			*Financial Effect*
Commercial Real Estate:
Non-owner occupied	$	16,000		3.5	%	Extended term on interest only payments for six months.
Commercial & industrial		315		0.4	%	Extended term for three months.
Total	$	16,315

The Company monitors loan payments on performing and non-performing loans on an ongoing basis to determine if a loan is considered to have a payment default. The loans that were modified in the twelve-month periods ended December 31, 2024 and December 31, 2023 are current on contractual payments, except for one loan for $364,000 as of December 31, 2024 and one loan for $315,000 as of December 31, 2023, that are both on nonaccrual and are individually evaluated, respectively.

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Credit quality risk ratings include regulatory classifications of Pass, Watch, Criticized (Special Mention), Classified (Substandard), Doubtful, and Loss. Loans classified as Pass have quality metrics to support that the loan will be repaid according to the terms established. Loans classified as Watch have similar characteristics as Pass loans with some emerging signs of financial weaknesses that should be monitored closer. Loans classified as Watch are included in the Pass totals in the following tables. Loans classified as Criticized (Special Mention) have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of prospects for repayment. Loans classified as Classified (Substandard) have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a Loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated Pass.

The following table presents the risk category of loans by credit quality indicators by year of origination as of December 31, 2024:

	*Term Loans Amortized Cost Basis by Origination Year*
December 31, 2024
*(Dollars in thousands)*	*2024*		*2023*		*2022*		*2021*		*2020*		*Prior*		*Revolving Loans*		*Revolving Loans converted to Term*		*Total*
Residential Real Estate - Single Family
Pass	$	18,439	$	44,460	$	17,803	$	26,055	$	29,482	$	32,065	$	24,643	$	—	$	192,947
Criticized		500		—		393		1,596		3,436		—		—		—		5,925
Classified		200		—		—		3,507		1,338		—		440		—		5,485
Total Residential Real Estate - Single Family	$	19,139	$	44,460	$	18,196	$	31,158	$	34,256	$	32,065	$	25,083	$	—	$	204,357
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	132	$	—	$	—	$	132

Residential Real Estate - Multifamily
Pass	$	12,163	$	5,314	$	69,629	$	24,693	$	38,226	$	23,199	$	390	$	—	$	173,614
Criticized		—		26,250		—		11,703		606		19,514		—		—		58,073
Classified		—		—		—		3,197		—		—		—		—		3,197
Total Residential Real Estate - Multifamily	$	12,163	$	31,564	$	69,629	$	39,593	$	38,832	$	42,713	$	390	$	—	$	234,884
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Residential Real Estate - Farmland
Pass	$	106	$	—	$	—	$	—	$	—	$	134	$	—	$	—	$	240
Total Residential Real Estate - Farmland	$	106	$	—	$	—	$	—	$	—	$	134	$	—	$	—	$	240
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial Real Estate - Owner Occupied
Pass	$	23,633	$	64,924	$	81,427	$	41,167	$	38,446	$	78,706	$	24,921	$	—	$	353,224
Criticized		—		4,500		—		—		—		—		—		—		4,500
Total Commercial Real Estate - Owner Occupied	$	23,633	$	69,424	$	81,427	$	41,167	$	38,446	$	78,706	$	24,921	$	—	$	357,724
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial Real Estate - Non-Owner Occupied
Pass	$	75,392	$	9,668	$	154,994	$	58,931	$	46,057	$	153,682	$	34,180	$	—	$	532,904
Criticized		—		—		—		—		15,664		—		—		—		15,664
Classified		—		11,160		—		—		328		—		—		—		11,488
Total Commercial Real Estate - Non-Owner Occupied	$	75,392	$	20,828	$	154,994	$	58,931	$	62,049	$	153,682	$	34,180	$	—	$	560,056
Current period gross write-offs	$	—	$	740	$	—	$	—	$	—	$	—	$	—	$	—	$	740

Construction & Land Development
Pass	$	3,149	$	5,358	$	19,680	$	8,849	$	718	$	234	$	325,885	$	—	$	363,873
Criticized		—		—		—		—		—		—		1,138		—		1,138
Classified		—		—		1,950		—		—		—		26,424		—		28,374
Total Construction & Land Development	$	3,149	$	5,358	$	21,630	$	8,849	$	718	$	234	$	353,447	$	—	$	393,385
Current period gross write-offs	$	—	$	289	$	—	$	259	$	3,136	$	—	$	—	$	—		3,684

Commercial & Industrial
Pass	$	15,470	$	7,197	$	10,237	$	3,793	$	2,026	$	7,550	$	27,625	$	—	$	73,898
Classified		319		—		—		3,712		—		1,600		3,249		—		8,880
Total Commercial & Industrial	$	15,789	$	7,197	$	10,237	$	7,505	$	2,026	$	9,150	$	30,874	$	—	$	82,778
Current period gross write-offs	$	4	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	4
										—
Consumer - Unsecured
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	343	$	—	$	343
Total Consumer - Unsecured	$	—	$	—	$	—	$	—	$	—	$	—	$	343	$	—	$	343
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer - Secured
Pass	$	187	$	41	$	184	$	—	$	13	$	721	$	85			$1,231
Total Consumer - Secured	$	187	$	41	$	184	$	—	$	13	$	721	$	85	$	—	$	1,231
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	9	$	—	$	—	$	9

Total
Pass	$	148,539	$	136,962	$	353,954	$	163,488	$	154,968	$	296,291	$	438,072	$	—	$	1,692,274
Criticized		500		30,750		393		13,299		19,706		19,514		1,138		—		85,300
Classified		519		11,160		1,950		10,416		1,666		1,600		30,113		—		57,424
Total loans	$	149,558	$	178,872	$	356,297	$	187,203	$	176,340	$	317,405	$	469,323	$	—	$	1,834,998
Current period gross write-offs	$	4	$	1,029	$	—	$	259

MainStreet Bancshares, Inc. 10-K/A