MainStreet Bancshares(US:MNSB)2021-08-12 14:46PART I – FINANCIAL INFORMATION Consolidated Financial Statements Presents the unaudited consolidated statements of financial condition, income, equity, and cash flows for the period ended June 30, 2021 Consolidated Statements of Financial Condition Highlights (in thousands) | Account | June 30, 2021 (unaudited) | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $1,707,695 | $1,643,165 | | Cash and cash equivalents | $176,285 | $107,528 | | Loans, net | $1,256,436 | $1,230,379 | | Total deposits | $1,464,932 | $1,438,246 | | Total Liabilities | $1,528,067 | $1,475,500 | | Total Stockholders' Equity | $179,628 | $167,665 | Consolidated Statements of Income Highlights (in thousands) | Account | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $12,991 | $10,726 | $26,466 | $21,025 | | Provision for (Recovery of) Loan Losses | $(2,080) | $5,575 | $(1,760) | $5,925 | | Net Income (Loss) | $7,126 | $(634) | $12,575 | $2,836 | | Net Income (Loss) Available To Common Shareholders | $6,587 | $(634) | $11,497 | $2,836 | | Diluted EPS | $0.87 | $(0.08) | $1.53 | $0.34 | Notes to Consolidated Financial Statements Provides detailed explanations of accounting policies for key areas like securities, loans, derivatives, and fair value measurements Note 1: Organization, Basis of Presentation and Accounting Pronouncements Details the company's status as an emerging growth company and its preparations for adopting the new CECL accounting standard - The company is an 'emerging growth company' and a 'smaller reporting company', which allows for reduced public company reporting requirements18 - The company is preparing for the adoption of ASU 2016-13 (CECL) for fiscal years beginning after December 15, 2022, and is working with a third party to test parallel models65 Note 2: Investment Securities Outlines the composition and valuation of the company's available-for-sale and held-to-maturity securities portfolios Investment Securities Portfolio (in thousands) | Category | June 30, 2021 (Fair Value) | December 31, 2020 (Fair Value) | | :--- | :--- | :--- | | Available-for-Sale | $165,791 | $147,414 | | U.S. Treasury Securities | $100,000 | $90,000 | | Collateralized Mortgage Backed | $26,873 | $24,896 | | Municipal Securities | $26,473 | $22,605 | | Held-to-Maturity (Amortized Cost) | $26,136 | $22,520 | - As of June 30, 2021, there were unrealized losses of $788,000 in the available-for-sale portfolio, primarily attributed to changes in interest rates and not credit deterioration7778 Note 3: Loans Receivable Details the loan portfolio composition, allowance for loan losses, and credit quality metrics as of June 30, 2021 Loan Portfolio Composition (Gross Loans, in thousands) | Loan Type | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Commercial Real Estate | $503,515 | $466,898 | | Construction and Land Development | $328,480 | $324,906 | | Commercial & Industrial | $218,414 | $230,027 | | Residential Real Estate | $190,426 | $183,216 | | Consumer – Non Real-Estate | $33,643 | $44,073 | | Total Gross Loans | $1,274,478 | $1,249,435 | - Commercial and industrial loans included $124.6 million in Paycheck Protection Program (PPP) loans at June 30, 2021, down from $135.2 million at December 31, 202081 Allowance for Loan Losses Activity (Six Months Ended June 30, 2021, in thousands) | Description | Amount | | :--- | :--- | | Beginning Balance (Dec 31, 2020) | $12,877 | | Charge-offs | $(4) | | Recoveries | $20 | | Provision (Recovery) | $(1,760) | | Ending Balance (June 30, 2021) | $11,133 | - As of June 30, 2021, the company had no loans classified as Troubled Debt Restructurings (TDRs)95 Note 4: Derivatives and Risk Management Describes the use of interest rate swaps to manage customer interest rate risk and the associated financial impact Interest Rate Swap Positions (in thousands) | Description | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Notional Amount | $209,370 | $210,314 | | Fair Value (Asset/Liability) | $4,663 | $12,152 | - No interest rate swap fee income was recognized in the first six months of 2021, compared to $826,000 in the same period of 202098 Note 5: Fair Value Presentation Explains the three-level hierarchy used for fair value measurements of assets and liabilities - All assets and liabilities measured at fair value on a recurring basis, totaling $170.5 million in assets and $4.7 million in liabilities, are classified as Level 2106 - Assets measured at fair value on a nonrecurring basis, including impaired loans and OREO, totaled $2.0 million and are classified as Level 3111 Note 6: Earnings Per Common Share Presents the calculation of basic and diluted earnings per common share for the reported periods Earnings Per Share Calculation | Metric | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net income available to common shareholders | $6,587,000 | $11,497,000 | | Weighted average shares (basic & diluted) | 7,546,452 | 7,535,061 | | Basic and Diluted EPS | $0.87 | $1.53 | Note 8: Leases Details the company's operating lease agreements, associated assets and liabilities, and recent lease activities Lease Balances (as of June 30, 2021, in thousands) | Item | Value | | :--- | :--- | | Right-of-use assets | $7,347 | | Lease liabilities | $7,806 | | Weighted-average remaining lease term | 178.0 months | | Weighted-average discount rate | 2.81% | - The company entered into a new operating lease for an operations center during the first six months of 2021126 - The branch located at 4029 Chain Bridge Rd in Fairfax City is scheduled to close on August 27, 2021128 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, balance sheet changes, liquidity, and capital, highlighting strong income growth and a well-capitalized position COVID-19 Pandemic Impact Management discusses ongoing risks and responsive actions related to the COVID-19 pandemic, including participation in the PPP - The company actively participated in the expanded Paycheck Protection Program (PPP), originating 572 additional loans totaling $87.3 million since December 2020144 - Management acknowledges ongoing risks from the pandemic, including potential impacts on credit quality, collateral values, and operational continuity141147149 Results of Operations: Three Months Ended June 30, 2021 vs. 2020 Q2 2021 net income improved significantly, driven by a large recovery of loan loss provisions and higher net interest income Q2 2021 vs Q2 2020 Performance (in thousands) | Metric | Q2 2021 | Q2 2020 | Change | | :--- | :--- | :--- | :--- | | Net Income (Loss) | $7,126 | $(634) | $7,760 | | Net Interest Income | $12,991 | $10,726 | $2,265 | | Provision for (Recovery of) Loan Losses | $(2,080) | $5,575 | $(7,655) | | Non-Interest Income | $1,555 | $1,318 | $237 | | Non-Interest Expense | $7,873 | $7,360 | $513 | - The significant improvement in profitability was largely due to a recovery of loan loss provision of $2.1 million in Q2 2021, compared to a $5.6 million provision expense in Q2 2020159178 - Net interest margin increased to 3.18% in Q2 2021 from 3.05% in Q2 2020168 Results of Operations: Six Months Ended June 30, 2021 vs. 2020 H1 2021 net income rose sharply due to a significant recovery of loan loss provisions and growth in net interest income H1 2021 vs H1 2020 Performance (in thousands) | Metric | H1 2021 | H1 2020 | Change | | :--- | :--- | :--- | :--- | | Net Income | $12,575 | $2,836 | $9,739 | | Net Interest Income | $26,466 | $21,025 | $5,441 | | Provision for (Recovery of) Loan Losses | $(1,760) | $5,925 | $(7,685) | | Non-Interest Income | $3,001 | $2,732 | $269 | | Non-Interest Expense | $15,683 | $14,502 | $1,181 | - The provision for loan losses was a recovery of $1.8 million for the first half of 2021, compared to an expense of $5.9 million in the prior-year period199 - Net interest income grew due to a $280.3 million increase in average interest-earning assets, which offset a 51 basis point decline in the average yield183184 Financial Condition: June 30, 2021 vs. December 31, 2020 Total assets grew to $1.71 billion, driven by increases in cash and loans, while deposits shifted to lower-cost accounts Balance Sheet Changes (in millions) | Account | June 30, 2021 | Dec 31, 2020 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $1,707.7 | $1,643.2 | $64.5 | | Net Loans | $1,256.4 | $1,230.4 | $26.0 | | Total Deposits | $1,464.9 | $1,438.2 | $26.7 | | Nonperforming Assets | $1.2 | $1.3 | $(0.1) | - Non-interest bearing demand deposits increased by $115.5 million (31.2%), while money market deposits decreased by $116.3 million (27.3%)208 - The allowance for loan losses to gross loans (excluding PPP loans) was 0.97%, down from 1.16% at year-end 2020207 Liquidity and Capital Resources The company maintains a strong liquidity position and remains 'well capitalized' under all regulatory guidelines - The company has significant available liquidity, including $176.3 million in cash and $435.9 million in unused FHLB borrowing capacity210213 Bank Regulatory Capital Ratios (as of June 30, 2021) | Ratio | Actual | 'Well Capitalized' Minimum | | :--- | :--- | :--- | | Total capital to risk-weighted assets | 16.25% | > 10.0% | | Common equity tier 1 capital to risk-weighted assets | 15.40% | > 8.0% | | Tier 1 capital to risk-weighted assets | 15.40% | > 8.0% | | Tier 1 capital to average assets | 11.78% | > 5.0% | Quantitative and Qualitative Disclosures about Market Risk This section is not required for smaller reporting companies, and therefore no information is provided - Disclosure is not required for smaller reporting companies228 Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2021228 - No material changes in internal control over financial reporting occurred during Q2 2021229 PART II – OTHER INFORMATION Legal Proceedings The company was not involved in any material legal proceedings outside of the ordinary course of business - The Company was not involved in any pending legal proceedings other than routine matters considered immaterial in the aggregate231 Risk Factors This section is not required for smaller reporting companies and refers to the company's most recent Form 10-K - Disclosure is not required for smaller reporting companies and the report references the Form 10-K filed on March 23, 2021 for risk factors232 Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any of its common shares during the second quarter of 2021 - The Company did not repurchase any common shares during the second quarter of 2021233 Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL data files - Exhibits filed include CEO and CFO certifications and financial statements formatted in Inline XBRL236 Signatures