MainStreet Bancshares(MNSB) - 2019 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements, notes, and management's discussion and analysis for the reporting period Consolidated Financial Statements The unaudited consolidated financial statements detail the company's financial position, operations, and cash flows, highlighting significant growth in net income and asset base Consolidated Statements of Financial Condition This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time Financial Position Comparison (in thousands USD) | Metric | June 30, 2019 (unaudited) | December 31, 2018 | | :--- | :--- | :--- | | Total Assets | $1,184,764 | $1,100,613 | | Loans, net | $983,574 | $917,125 | | Total Liabilities | $1,055,728 | $979,362 | | Total deposits | $1,011,131 | $920,137 | | Total Stockholders' Equity | $129,036 | $121,251 | - Total assets grew by 7.6% to $1.18 billion in the first six months of 2019, primarily driven by a 7.2% increase in net loans, funded by a 9.9% increase in total deposits[8] Consolidated Statements of Income This statement reports the company's revenues, expenses, and net income over specific periods Income Statement Highlights (in thousands USD, except per share data) | Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $9,885 | $7,508 | $19,233 | $14,283 | | Provision for Loan Losses | $750 | $1,395 | $1,075 | $2,030 | | Net Income | $3,431 | $1,503 | $6,678 | $3,189 | | Diluted EPS | $0.42 | $0.26 | $0.81 | $0.55 | - Net income for the second quarter of 2019 more than doubled to $3.4 million compared to $1.5 million in Q2 2018, driven by a 31.7% increase in net interest income and a significant reduction in the provision for loan losses[10] Consolidated Statements of Comprehensive Income This statement presents net income and other comprehensive income components, reflecting total non-owner changes in equity Comprehensive Income (in thousands USD) | Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $3,431 | $1,503 | $6,678 | $3,189 | | Other comprehensive income (loss) | $366 | $(132) | $581 | $(265) | | Comprehensive Income | $3,797 | $1,371 | $7,259 | $2,924 | Consolidated Statements of Stockholders' Equity This statement details changes in the company's equity accounts over specific periods - Total stockholders' equity increased from $121.3 million at year-end 2018 to $129.0 million as of June 30, 2019, primarily due to $6.7 million in net income and $0.6 million in other comprehensive income[12] Consolidated Statements of Cash Flows This statement summarizes the cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary for Six Months Ended June 30 (in thousands USD) | Cash Flow Category | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $6,731 | $3,912 | | Net cash used in investing activities | $(70,990) | $(135,322) | | Net cash provided by financing activities | $70,994 | $125,184 | | Increase (Decrease) in Cash | $6,735 | $(6,226) | - For the first six months of 2019, the company experienced a net increase in cash and cash equivalents of $6.7 million, primarily funded by a $91.0 million net increase in deposits[14] Notes to Consolidated Financial Statements This section provides detailed explanations of accounting policies and financial data, covering investment securities, loans, derivatives, fair value, and lease accounting Note 1: Organization and Accounting Policies This note outlines the company's organizational structure, basis of financial statement presentation, and impact of new accounting pronouncements - On April 22, 2019, the Company's common stock was approved for listing on the Nasdaq Capital Market under the symbol "MNSB"[18] - The Company is classified as an "emerging growth company" and a "smaller reporting company," which allows it to comply with certain reduced public company reporting requirements[18] - The Company is preparing for the adoption of ASU No. 2016-13 (CECL), effective for fiscal years beginning after December 15, 2019, which requires the measurement of all expected credit losses for financial assets[64] Note 2: Investment Securities This note details the composition and fair value of the company's investment securities portfolio Investment Securities Portfolio (in thousands USD) | Category | June 30, 2019 (Fair Value) | Dec 31, 2018 (Fair Value) | | :--- | :--- | :--- | | Available-for-sale | $60,079 | $55,979 | | Held-to-maturity (Amortized Cost) | $24,946 | $26,178 | | Total | $85,025 | $82,157 | - The company does not consider any securities in its portfolio to be other-than-temporarily impaired at June 30, 2019, with unrealized losses primarily attributed to changes in interest rates, not credit deterioration[73][74] Note 3: Loans Receivable This note provides a breakdown of the loan portfolio, including credit quality and nonaccrual status Gross Loan Portfolio Composition (in thousands USD) | Loan Category | June 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Commercial Real Estate | $425,862 | $377,761 | | Construction and Land Development | $203,873 | $183,551 | | Residential Real Estate | $158,406 | $149,627 | | Commercial & Industrial | $117,905 | $114,221 | | Consumer – Non Real Estate | $88,421 | $102,277 | | Total Gross Loans | $994,467 | $927,437 | - Troubled Debt Restructurings (TDRs) decreased significantly to $1.5 million as of June 30, 2019, from $3.4 million at December 31, 2018[87] - Nonaccrual loans decreased to zero as of June 30, 2019, down from $1.9 million at year-end 2018[85] Note 4: Derivatives and Risk Management This note describes the company's use of derivative instruments for risk management and related income - The notional amount of interest rate swaps used to assist commercial loan customers with their risk management increased to $51.2 million at June 30, 2019, from $36.6 million at December 31, 2018[89][91] - The company generated loan swap fee income of $181,000 for Q2 2019 and $471,000 for H1 2019, with no such income recorded in the same periods of 2018[91] Note 5: Fair Value Presentation This note explains the fair value measurements of financial instruments, categorized by valuation inputs - The company's entire portfolio of available-for-sale securities and derivative instruments are classified as Level 2 in the fair value hierarchy, meaning their values are derived from observable market data for similar assets[96][98] - Assets measured at fair value on a nonrecurring basis include Other Real Estate Owned (OREO), which totaled $1.2 million at June 30, 2019, and are classified as Level 3[100][101] Note 6: Earnings Per Common Share This note details the calculation of basic and diluted earnings per common share Earnings Per Share Calculation | Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :--- | :--- | :--- | :--- | :--- | | Net income (in thousands) | $3,431 | $1,503 | $6,678 | $3,189 | | Weighted average shares | 8,250,210 | 5,810,383 | 8,246,562 | 5,801,541 | | Basic and diluted EPS | $0.42 | $0.26 | $0.81 | $0.55 | Note 8: Leases This note discusses the adoption of the new lease accounting standard and its impact on the financial statements - On January 1, 2019, the Company adopted the new lease accounting standard (ASC 842), resulting in the recognition of a $2.7 million right-of-use asset and a corresponding lease liability[110] Lease Balances as of June 30, 2019 (in thousands USD) | Item | Amount | | :--- | :--- | | Lease liabilities | $2,599 | | Right-of-use assets | $2,583 | Management's Discussion and Analysis (MD&A) Management discusses the strong first-half performance driven by loan growth, increased net interest income, new non-interest income streams, and improved credit quality, while maintaining strong liquidity and capital Results of Operations This section analyzes the company's financial performance, including net income, interest margin, and expense trends - Net income for Q2 2019 increased by $1.9 million to $3.4 million year-over-year, driven by increased interest income from loan growth, a $758,000 increase in non-interest income, and a $645,000 decrease in the provision for loan losses[130] Net Interest Margin and Spread Comparison (Q2) | Metric | Q2 2019 | Q2 2018 | | :--- | :--- | :--- | | Net Interest Margin | 3.51% | 3.54% | | Interest Rate Spread | 2.89% | 3.12% | - Non-interest income for Q2 2019 grew 130.0% year-over-year, boosted by new revenue from $181,000 in loan swap fees and $263,000 in gains from the sale of guaranteed portions of SBA loans[148] - Non-interest expense for Q2 2019 increased 26.9% year-over-year, mainly due to a $1.0 million rise in salaries and benefits from hiring seventeen new employees and related costs[149] Financial Condition This section reviews the company's balance sheet, focusing on asset growth, deposit funding, and credit quality - Total assets increased by $84.2 million (7.6%) to $1.2 billion at June 30, 2019, from year-end 2018, driven by a $66.4 million (7.2%) increase in net loans[174][176] - Total deposits grew by $91.0 million (9.9%) to over $1.0 billion, with certificates of deposit increasing by $108.7 million, partly from brokered deposits used to fund loan growth[180] Nonperforming Assets (in thousands USD) | Metric | June 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total non-performing loans | $34 | $1,950 | | Other real estate owned | $1,207 | $0 | | Total non-performing assets | $1,241 | $1,950 | | NPA to Total Assets Ratio | 0.10% | 0.18% | Liquidity and Capital Resources This section assesses the company's ability to meet financial obligations and maintain adequate capital levels - The company maintains multiple sources of liquidity, including $20.0 million in FHLB advances outstanding with an additional unused borrowing capacity of $286.4 million as of June 30, 2019[182] - As of June 30, 2019, both the Company and the Bank exceeded all regulatory capital requirements and were considered "well capitalized" under regulatory guidelines[188][191] - The company had outstanding loan commitments of $281.7 million and standby letters of credit of $672,000 as of June 30, 2019[192] Quantitative and Qualitative Disclosures about Market Risk This disclosure is not required for smaller reporting companies, hence no information is provided - Disclosure is not required for smaller reporting companies[193] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal control over financial reporting - Management concluded that as of June 30, 2019, the company's disclosure controls and procedures were effective[193] - No material changes were made to the internal control over financial reporting during the second quarter of 2019[194] PART II – OTHER INFORMATION This section covers legal proceedings, risk factors, and exhibits related to the company's operations Legal Proceedings As of June 30, 2019, the Company was not involved in any material legal proceedings beyond routine business matters - The Company is not involved in any pending legal proceedings other than routine matters occurring in the ordinary course of business, which are not expected to be material[196] Risk Factors This section is not required for smaller reporting companies, with reference made to the previously filed Form 10 for risk factors - Disclosure is not required for smaller reporting companies; reference is made to the Form 10 filed on February 15, 2019[197] Exhibits This section lists the exhibits filed with the report, including CEO and CFO certifications and XBRL data - The report includes CEO and CFO certifications under Rule 13a-14(a) and Section 1350, as well as XBRL instance and taxonomy documents[201]