MainStreet Bancshares Inc

MAINSTREET BANCSHARES,** INC. AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements

Note1. Organization, Basis of Presentation and Impact of Recently Issued Accounting Pronouncements

Organization

MainStreet Bancshares, Inc. (the “Company”) is a financial holding company incorporated under the laws of the Commonwealth of Virginia whose primary activity is the ownership and management of MainStreet Bank (the “Bank”). On* October 12, 2021,the Company filed an election with the Federal Reserve Board to be a financial holding company in order to engage in a broader range of financial activities than are permitted for bank holding companies generally. The Company is authorized to issue 15,000,000 shares of common stock with a par value of $4.00 per share. Additionally, the Company is authorized to issue 2,000,000 shares of preferred stock at a par value $1.00 per share. There are currently 28,750 shares of preferred stock outstanding. The Company is regulated under the Bank Holding Company Act of1956,* as amended (“BHC Act”) and is subject to inspection, examination, and supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve”).

On* April 18, 2019,the Company completed the registration of its common stock with the Securities Exchange Commission (the “SEC”) through its filing of a General Form for Registration of Securities on Form10* (“Form10”), pursuant to Section12(b) of the Securities Exchange Act of1934. The Company is considered an “emerging growth company” under the Jumpstart Our Business Startups Act of2012, or the “JOBS Act,” and as defined in Section2(a) of the Securities Act of1933, as amended, or the “Securities Act.” We are also a “smaller reporting company” as defined in Exchange Act Rule12b-2. As such, we* may*elect to comply with certain reduced public company reporting requirements in future reports that we file with the SEC.

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

The Bank is headquartered in Fairfax, Virginia where it also operates a branch. The Bank was incorporated on* March28,* 2003, and received its charter from the Bureau of Financial Institutions of the Commonwealth of Virginia (the “Bureau”) on* March16,* 2004. The Bank commenced regular operations on* May**26,* 2004, and is supervised by the Bureau and the Federal Reserve. The Bank is a member of the Federal Reserve System and the Federal Deposit Insurance Corporation. The Bank places special emphasis on serving the needs of retail customers, small and medium-sized businesses and professionals in the Washington, D.C. metropolitan area.

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

On* October 25, 2021,MainStreet Bancshares, Inc. formally introduced Avenu, a division of MainStreet Bank. Avenu provides an embedded Banking as a Service (BaaS) solution that connects our partners (fintechs, application developers, money movers, and entrepreneurs) directly and seamlessly to our Software as a Service (SaaS) solution. Our SaaS software program was deployed in October 2024.The Avenu division is classified within our Financial Technology reportable segment outlined in Note10.* Additional information can be found in our investor presentations filed quarterly.

Basis of Presentation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) for interim information and with the instructions to the Quarterly Report on Form10-Q, as applicable to a smaller reporting company. Accordingly, they donot include all the information and notes required by US GAAP for complete financial statements.

The financial statements are unaudited; but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation thereof. The balances as of* December 31, 2023* have been derived from the audited consolidated financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto contained in the Form10-K filed by the Company with the SEC on* March 20, 2024.The results of operations for thethree* andnine months ended* September 30, 2024* arenot necessarily indicative of the results that* maybe expected for the year ending December 31, 2024*, or any other period.

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

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

Recently Adopted Accounting Developments

FASB Accounting Standards UpdateNo. 2023-02, Investments - Equity Method and Joint Ventures (Topic323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method ("ASU2023-02")

On* March 29, 2023,the FASB issued ASU2023*-02 which amends previous guidance to allow entities to account for qualifying tax equity investments using the proportional amortization method regardless of the program giving rise to the related income tax credits, as opposed to only being allowed to apply this method to qualifying tax equity investments in low-income housing tax credit structures as was the case under previous guidance. ASU2023-02 is effective for fiscal years beginning after* December 15, 2023,including interim periods within those fiscal years. On January 1, 2024,the Company adopted ASU2023*-02 using the modified retrospective approach, which didnot have a material impact on the Company's financial statements. The Company transitioned from the equity method of accounting and began applying the proportional amortization method of accounting to its qualifying new markets tax credit investments in addition to its low income housing tax credit partnerships already subject to the proportional amortization method. The cumulative change in accounting principle was approximately $217,000.

Impact of Recently Issued Accounting Pronouncements

In* July 2023,the Financial Accounting Standards Board (FASB) issued ASU2023*-03, “Presentation of Financial Statements (Topic205), Income Statement—Reporting Comprehensive Income (Topic220), Distinguishing Liabilities from Equity (Topic480), Equity (Topic505), and Compensation—Stock Compensation (Topic718)”. This ASU amends the FASB Accounting Standards Codification for SEC paragraphs pursuant to SEC Staff Accounting BulletinNo. 120, SEC Staff Announcement at the* March 24, 2022EITF Meeting, and Staff Accounting Bulletin Topic6.B,* Accounting Series Release280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. ASU2023-03 is effective upon addition to the FASB Codification. The Company doesnot expect the adoption of ASU2023-03 to have a material impact on its consolidated financial statements.

In* October 2023,the Financial Accounting Standards Board (FASB) issued ASU2023*-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 werenot 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 arenot 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 effectivetwo years later. However, if by* June 30, 2027,the SEC hasnot* removed the related disclosure from its regulations, the amendments will be removed from the Codification andnot become effective for any entity. The Company doesnot expect the adoption of ASU2023-06 to have a material impact on its consolidated financial statements.

In* November 2023,the Financial Accounting Standards Board (FASB) issued ASU2023*-07, “Segment Reporting (Topic280): Improvements to Reportable Segment Disclosures.” The amendments in this ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures 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 Topic280 in interim periods, and the title and position of the CODM and how the CODM uses the reported measures. Additionally, this ASU requires that at leastone of the reported segment profit and loss measures should be the measure that is most consistent with the measurement principles 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 Topic280. 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 retrospectively. The Company doesnot* expect the adoption of ASU2023-07 to have a material impact on its consolidated financial statements.

In* December 2023,the Financial Accounting Standards Board (FASB) issued ASU2023*-09, “Income Taxes (Topic740): 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 thanfive 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 thanfive percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. This ASU is effective for annual periods beginning after* December 15, 2024.Early adoption is permitted. The amendments should be applied on a prospective basis; however, retrospective application is permitted. Company doesnot* expect the adoption of ASU2023-09 to have a material impact on its consolidated financial statements.

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In* March 2024,the Financial Accounting Standards Board (FASB) issued ASU2024*-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 andnot 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 entityfirst* applies the amendments or retrospectively to the beginning of the earliest comparative period presented in which the amendments werefirst 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 doesnot expect the adoption of ASU2024-02 to have a material impact on its consolidated financial statements.

In* March 2024,the Financial Accounting Standards Board (FASB) issued ASU2024*-01, “Compensation – Stock Compensation (Topic718): 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 Topic718. 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 doesnot* expect the adoption of ASU2024-01 to have a material impact on its consolidated financial statements.

In* November 2024,the Financial Accounting Standards Board (FASB) issued ASU2024*-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic220-40): Disaggregation of Income Statement Expenses.” ASU2024-03 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 arenot separately disaggregated quantitatively. ASU2024-03 is effective for public business entities for annual reporting periods beginning after* December 15, 2026,and interim reporting periods beginning after December 15, 2027.Implementation of ASU2024*-03 * maybe applied prospectively or retrospectively. The Company doesnot* expect the adoption of ASU2024-03 to have a material impact on its consolidated financial statements.

Note2. Investment Securities

The following tables summarize the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at* September 30, 2024* and* December 31, 2023* and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss. The Company didnot record an allowance for credit losses ("ACL") on its securities available-for-sale or held-to-maturity portfolio as of* September 30, 2024* and* December 31, 2023*.

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

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

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

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

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Credit Quality Indicators and Allowance for Credit Losses - HTM

For HTM securities, the Company evaluates the credit risk of its securities on at least a quarterly basis. The Company estimates expected credit losses on HTM debt securities on an individual basis using security-level credit ratings. The Company’s HTM securities ACL was immaterial at* September 30, 2024* and* December 31, 2023*. The primary indicators of credit quality for the Company’s HTM portfolio are security type and credit rating, which is influenced by a number of factors including obligor cash flow, geography, seniority, and others. The majority of the Company’s HTM securities with credit risk are obligations of states and political subdivisions.

The following table presents the amortized cost of HTM securities as of* September 30, 2024* and* December 31, 2023* by security type and credit rating:

As of* September 30, 2024* and* December 31, 2023*, the Company hadno securities held-to-maturity that were past due30 days or more as to principal or interest payments. The Company hadno securities held-to-maturity classified as nonaccrual as of* September 30, 2024* and* December 31, 2023*.

The scheduled maturities of securities available-for-sale and held-to-maturity at* September 30, 2024* were as follows:

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The scheduled maturities of securities available-for-sale and held-to-maturity at* December 31, 2023* were as follows:

Securities with a fair value of $399,000 and $16.1 million were pledged at* September 30, 2024* and* December 31, 2023*, respectively. As the Federal Reserve Bank ended its Bank Term Funding Program, the Companyno longer continued to pledge eligible securities. The Company didnot need to utilize this program as its liquidity position remains strong.

The following tables summarize the unrealized loss positions of securities available-for-sale as of* September 30, 2024* and* December 31, 2023*:

Unrealized losses on each of the major categories of securities havenot been recognized into income because all the securities are of high credit quality (rated A or higher, if rated). Management doesnot intend to sell and it is unlikely management will be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the securities. The fair value is expected to recover as the securities approach maturity. The following description provides the number of investment positions in an unrealized loss position and approximate duration of that loss position.

At* September 30, 2024*, there were twenty-two collateralized mortgage backed securities with fair values totaling $18.3 million in an unrealized loss position of more than12 months. At* September 30, 2024*, there wasone subordinated debt security totaling $216,000 in an unrealized loss position of less than12 months andtwenty-one securities with a fair value totaling $7.6 million in an unrealized loss position of more than12 months. At* September 30, 2024*, there wasone tax-exempt municipal securities with a fair value totaling approximately $241,000 in an unrealized loss position of less than12 months andtwenty-seven securities with fair values totaling $17.0 million in an unrealized loss position of more than12 months. At* September 30, 2024*, there were eleven taxable municipal securities with fair values totaling $8.6 million in an unrealized loss position of more than12 months. At* September 30, 2024*, there weresix government agency securities with a fair value of approximately $636,000 in an unrealized loss position of more than12 months.

The Company periodically invests in New Market Tax Credit 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 doesnot 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.

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Note3. Loans Receivable

Loans receivable were comprised of the following:

The unsecured consumer loans above include $413,000 and $271,000 of overdrafts reclassified as loans at* September 30, 2024* and* December 31, 2023*, respectively.

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The following tables present the amortized cost basis by segments of the loan portfolio summarized by aging categories as of* September 30, 2024* and* December 31, 2023*:

The following tables summarize the activity in the allowance for credit losses on loans by loan class for thethree andnine months ended* September 30, 2024and2023*.

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Allowance for Credit Losses By Portfolio Segment

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

The following table represents the accrued interest receivables written off by reversing interest income during thethree andnine months ended* September 30, 2024*. The Company didnot write off accrued interest receivables during thethree andnine months ended* September 30, 2023*.

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:

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

As of* September 30, 2024*, there wereno loans in the process of foreclosure.

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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 generallynot recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. 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 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 thenine months ended* September 30, 2024*. The Company didnot modify any loans to borrowers experiencing financial difficulty during thethree months ended* September 30, 2024*.

The Company didnot modify any loans to borrowers experiencing financial difficulty during thethree andnine months ended* September 30, 2023*.

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, Special Mention, 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 Special Mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses* mayresult in deterioration of prospects for repayment. Loans 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, based on current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for credit losses. Loansnot* classified are rated pass.

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The following tables summarize the amortized cost basis by aggregate Pass and categories of Special Mention (Criticized) and Substandard (Classified) within the Company’s internal risk rating system by year of origination as of* September 30, 2024* and* December 31, 2023*. The following tables also summarize gross charge-offs, by year of origination as of and for thenine months ended* September 30, 2024* and as of and for the year ended* December 31, 2023*.

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Unfunded Commitments

The Company maintains an allowance for credit losses on off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit isnot unconditionally cancellable (i.e. commitment cannot be canceled at any time). The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on funded loans. The allowance for credit losses for off-balance sheet credit exposure is classified on the balance sheet within other liabilities.

The following table presents the balance and activity in the allowance for credit losses for off-balance sheet credit exposure for thethree andnine months ended* September 30, 2024* and2023, respectively.

Note4. Intangible Assets

The carrying amount of computer software developed was $18.9 million and $14.7 million at* September 30, 2024* and* December 31, 2023*. The following table presents the carrying amount of computer software developed as of* September 30, 2024* and* December 31, 2023*.

The Company was still in the development stage of computer software where costs are capitalized as of* September 30, 2024.Capitalization ceases when the software is substantially complete and ready for its intended use. The asset was deemed ready for its intended use and deployed to customers in October 2024.The intangible asset will be amortized on a straight-line basis over the estimated useful life of the asset, which is expected to beten years. As of September 30, 2024*, the Company hasnot recorded any amortization on its intangible computer software.

Note5. Derivatives and Risk Management Activities

The Company uses derivative financial instruments (“derivatives”) primarily to assist customers with their risk management objectives. The Company classifies these items as free standing derivatives consisting of customer accommodation interest rate loan swaps (“interest rate loan swaps”). The Company enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Company simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and terms. The net result of these interest rate swaps is that the customer pays a fixed rate of interest and the Company receives a floating rate. These back-to-back interest rate loan swaps qualify as financial derivatives with fair values reported in “Other assets” and “Other liabilities” in the consolidated financial statements. Changes in fair value are recorded in other noninterest expense and net tozero because of the identical amounts and terms of the interest rate loan swaps.

The following tables summarize key elements of the Company’s derivative instruments as of* September 30, 2024* and* December 31, 2023*.

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The Company is able to recognize fee income upon execution of the interest rate swap contract. The Company didnot record any interest rate swap fee income for thethree andnine months ended* September 30, 2024* or2023.

Note6. Fair Value Presentation

In accordance with FASB ASC820, “Fair Value Measurements and Disclosure”, the Bank uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability (“an exit price”) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there areno quoted market prices for the Bank’s various financial instruments. In cases where quoted market prices arenot available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates* may**not* be realized in an immediate settlement of the instrument.

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in the principal or most advantageous market for the asset or liability in an orderly transaction (that is,not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques* may*be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is the most representative of fair value under current market conditions.

In accordance with the guidance, a hierarchy of valuation techniques is based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Bank’s market assumptions. Thethree levels of the fair value hierarchy under FASB ASC820 based on thesetwo types of inputs are as follows:

Level1 –Valuation is based on quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.

Level2 –Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.

Level3 –Valuation is based on model-based techniques that useone or more significant inputs or assumptions that are unobservable in the market.

The following describes the valuation techniques used by the Bank to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:

Securities available for sale

Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level1). If quoted market prices arenot available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and* maydetermine the fair value of identical or similar securities by using pricing models that consider observable market data (Level2*). In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level3 of the valuation hierarchy. As of* September 30, 2024*, and* December 31, 2023*, the Bank’s entire portfolio of available for sale securities are considered to be Level2 securities, with the exception ofone subordinated debt security andone preferred stock security which are considered Level3.

Derivative asset (liability) –** interest rate swaps on loans**

As discussed in “Note5: “Derivative and Risk Management Activities”, the Bank recognizes interest rate swaps at fair value on a recurring basis. The Bank has contracted with athird party vendor to provide valuations for these interest rate swaps using standard valuation techniques and therefore classifies such interest rate swaps as Level2.

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The following tables provide the fair value for assets required to be measured and reported at fair value on a recurring basis as of* September 30, 2024* and* December 31, 2023*:

The table below shows the activity to the fair value of levelthree instruments during thenine months ended* September 30, 2024*.

Certain assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

The Company didnot have any assets that were measured at fair value on a nonrecurring basis as of* September 30, 2024* and* December 31, 2023*.

Fair Value of Financial Instruments

FASB ASC825, Financial Instruments, requires disclosure about fair value of financial instruments, including those financial assets and financial liabilities that arenot required to be measured and reported at fair value on a recurring or nonrecurring basis. ASC825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented* may**not* necessarily represent the underlying fair value of the Company. In accordance with ASU2016-01, the Company uses the exit price notion, rather than the entry price notion, in calculating the fair values of financial instrumentsnot measured at fair value on a recurring basis.

The following tables reflect the carrying amounts and estimated fair values of the Company’s financial instruments whether ornot recognized on the Consolidated Statement of Financial Condition at fair value.

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The above information shouldnot be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies* maynot* be meaningful. Assumptions utilized in the aggregation of fair value of our loan portfolio include prepayment rates, probability of default and loss given default, and discount rates on cash flows. Ourthird party valuation utilizes average data by homogenous loan segments nationwide and* maynot* properly reflect the characteristics of our specific portfolio. There wereno changes in methodologies or transfers between levels at* September 30, 2024* and* December 31, 2023*.

Note7. Earnings (Loss) Per Common Share

Basic earnings per common share excludes dilution and is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock which then shared in the earnings of the Company. There wereno such potentially dilutive securities outstanding in2024 or2023.

The weighted average number of shares used in the calculation of basic and diluted earnings per common share includes unvested restricted shares of the Company’s common stock outstanding. Applicable guidance requires that outstanding un-vested share-based payment awards that contain voting rights and rights to non-forfeitable dividends participate in undistributed earnings with common shareholders.

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Note8. Accumulated Other Comprehensive Loss

The following table presents the cumulative balances of the components of accumulated other comprehensive loss, net of deferred taxes, as of* September 30, 2024* and* December 31, 2023*:

Note9. Leases

Right-of-use assets and lease liabilities are included in other assets and other liabilities, respectively, in the Consolidated Statements of Financial Condition. Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. The incremental borrowing rate was equal to the rate of borrowing from the FHLB that aligned with the term of the lease contract. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs, and any incentives received from the lessor.

Certain of these leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably assured of being exercised. The lease agreements donot provide for residual value guarantees and haveno restrictions or covenants that would impact dividends or require incurring additional financial obligations.

The following table presents the balance and activity in leases for thethree andnine months ended* September 30, 2024* and2023, respectively

The Company is the lessor forthree operating leases. One lease is extended on a month-to-month basis whiletwo of these leases have arrangements for overtwelve months with an option to extend the lease terms. The lease agreements donot provide for residual value guarantees and haveno restrictions or covenants that would impact dividends or require incurring additional financial obligations. Total rent income on these operating leases is approximately $8,000 per month.

As of* September 30, 2024* and* December 31, 2023*, all of the Company’s lease obligations are classified as operating leases. The Company doesnot have any finance lease obligations.

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A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities as of* September 30, 2024* is as follows:

Note10: Segment Reporting

As of* September 30,*2024, we have identifiedtwo reportable segments: Core Banking and Financial Technology.

Revenues from Core Banking operations consist primarily of net interest income from loans and securities investments and outstanding deposits and borrowings and fees earned on deposit accounts, debit card interchange activity, and bank owned life insurance income.

Revenues from our Financial Technology division, which include Avenu, is comprised of net interest income allocation on deposit accounts generated within this division, as well as service charges on these deposit accounts.

The following tables present information about the reportable segments and reconciliation to the consolidated financial statements for the periods shown:

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