UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS
AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
☒ | ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2019
OR
☐ | 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
A. | Full title of the plan and the address of the plan, if different from that of the issuer named below: |
MainStreet Bank 401(k) Plan
B. | Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: |
MainStreet Bancshares, Inc.
10089 Fairfax Boulevard
Fairfax, Virginia 22030
As filed on June 23, 2020
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Plan Administrator
MainStreet Bank 401(k) Plan
Fairfax, Virginia
Opinion on the Financial Statements
We have audited the accompanying statements of net assets available for benefits of the MainStreet Bank 401(k) Plan (the Plan) as of December 31, 2019 and 2018, the related statement of changes in net assets available for benefits for the year ended December 31, 2019, and the related notes to the financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2019 and 2018, and the changes in net assets available for benefits for the year ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on the Plan’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Plan 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 the financial statements are free of material misstatement, whether due to error or fraud. Our audit 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 audit 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 audit provides a reasonable basis for our opinion.
Report on Supplemental Information
The supplemental information in the accompanying Schedule of Delinquent Participant Contributions for the Year Ended December 31, 2019 and Schedule of Assets (Held at End of Year) as of December 31, 2019, have been subjected to audit procedures performed in conjunction with the audit of the Plan’s financial statements. The supplemental information is presented for the purpose of additional analysis and is not a required part of the financial statements but includes supplemental information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental information is the responsibility of the Plan's management. Our audit procedures included determining whether the supplemental information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information in the accompanying schedules, we evaluated whether the supplemental information, including its form and content, is presented in conformity with the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the supplemental information in the accompanying schedules is fairly stated in all material respects in relation to the financial statements as a whole.
We have served as the Plan’s auditor since 2019.
/s/ Yount, Hyde & Barbour, P.C.
Richmond, Virginia
June 23, 2020
1
MainStreet Bank 401(k) Plan
Statements of Net Assets Available for Benefits
December 31, 2019 and 2018
|
| 2019 |
|
| 2018 |
| ||
Assets |
|
|
|
|
|
|
|
|
Investments, at fair value |
| $ | 11,571,052 |
|
| $ | 8,036,034 |
|
Notes receivable from participants |
|
| 183,211 |
|
|
| 179,923 |
|
Contribution receivable |
|
| — |
|
|
| 33,200 |
|
Total Assets |
|
| 11,754,263 |
|
|
| 8,249,157 |
|
Net assets available for benefits |
| $ | 11,754,263 |
|
| $ | 8,249,157 |
|
See Notes to Financial Statements.
2
MainStreet Bank 401(k) Plan
Statement of Changes in Net Assets Available for Benefits
For the Year Ended December 31, 2019
|
| 2019 |
| |
|
|
|
|
|
Investment Income |
|
|
|
|
Net appreciation in fair value of investments |
| $ | 2,437,408 |
|
Interests and dividends |
|
| 22,081 |
|
Total investment income |
|
| 2,459,489 |
|
Contributions |
|
|
|
|
Employer |
|
| 455,936 |
|
Participants |
|
| 910,517 |
|
Rollovers |
|
| 297,289 |
|
|
|
| 1,663,742 |
|
Total additions |
|
| 4,123,231 |
|
Deductions |
|
|
|
|
Benefits paid to participants |
|
| (533,874 | ) |
Administrative expenses |
|
| (84,251 | ) |
Total deductions |
|
| (618,125 | ) |
Net Increase |
|
| 3,505,106 |
|
Net Assets Available for Benefits, Beginning of Year |
|
| 8,249,157 |
|
Net Assets Available for Benefits, End of Year |
| $ | 11,754,263 |
|
|
|
|
|
|
See Notes to Financial Statements.
3
MainStreet Bank 401(k) Plan
Notes to Financial Statements
The following description of the MainStreet Bank 401(k) Plan (“the Plan”) provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions.
General
The Plan is a defined contribution 401(k) profit sharing plan administered by MainStreet Bank (“the Bank or Plan Sponser”), a wholly-owned subsidiary of MainStreet Bancshares, Inc. (the “Company”), pursuant to the provisions of Section 401(k) of the Internal Revenue Code. The Plan was establashied for the benefit of substantially all full-time employees electing to participate in the Plan. Employees are eligible to participate in the Plan on the first day of employment. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).
Contributions
The Plan permits eligible employees through a salary deferral election to have the Company make annual contributions of up to 100% of eligible compensation. Employee rollover and employee Roth contributions are also permitted. Participants who have attained age 50 before the end of the Plan year are eligible to make catch-up contributions. The Company makes safe harbor matching contributions of 100% of employees’ salary deferral amounts up to 3% of employees’ eligible compensation and 50% of employees’ salary deferral amounts on the next 2% of employees’ eligible compensation. Matching contributions are calculated on the employee’s pay and 401(k) elective deferrals for that payroll period.
Participants’ Accounts
Each participant’s account is credited with the participant’s contributions, the Company’s matching contributions and Plan earnings (based upon each participant’s investment elections) and is charged with an allocation of administrative expenses. Forfeitures are used to reduce the contributions required to be made by the Company. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.
Vesting
Participants are vested immediately in both their own contributions and the portion contributed by the Company, plus actual earnings thereon. The Plan has no forfeitures since participants are vested 100% on their initial day of enrollment.
Investment Options
Investment of all assets in the Plan is directed by individual participants. Participants are given the option to direct account balances and all contributions made into various investment options consisting of managed, indexed or individual equity or fixed income funds. Participants may choose to have any of their contributions (other than rollover contributions) and the contributions made by the Company invested in our company stock. Participants may change their investment options daily. The Plan also includes a qualified Roth 401(k) contribution feature whereby participants may elect to designate some or all of their elective deferral contributions as Roth 401(k) contributions. Roth 401(k) contributions are made in after-tax dollars and the decision to characterize the deferral as a Roth 401(k) contribution is made at the time the contribution is made.
Notes Receivable from Participants
The Plan document includes provisions authorizing loans from the Plan to active eligible participants. Loans are made to any eligible participant with sufficient collateral. The participants vested account balance will serve as the collateral for the loan. The minimum amount of a loan shall be $1,000. The maximum amount of a participant's loans is determined by the lesser of $50,000 or 50% of the participant's vested account balance. All loans are covered by demand notes and are repayable over a period not to exceed five years, except for loans for the purchase of a principal residence. Interest on the loans is charged at similar rates available from commercial lending institutions.
4
If the vested account, excluding rollover contributions, is $5,000 or less, the participants vested account will be paid in a single sum. If the vested account, excluding rollover contributions, is greater than $5,000, payment will be made under any of the options available under the plan.
Note 2. Summary of Significant Accounting Policies
Basis of Accounting
The financial statements of the Plan are prepared under the accrual method of accounting.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of net assets available for benefits and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
Investment Valuation and Income Recognition
The Plan’s investments are reported at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The Plan’s management determines the Plan’s investment valuations utilizing information provided by the investment advisors, custodians and insurance company. See Note 3 for a discussion of fair value measurements. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net appreciation includes the Plan’s gains and losses on investments bought and sold as well as held during the Plan year.
Benefit Payments
Benefit payments are recorded when paid.
Notes Receivable from Participants
Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Delinquent loans are treated as distributions based upon the terms of the Plan document.
Expenses
Certain expenses of maintaining the Plan are paid directly by the Plan Sponsor. Fees related to the administration of notes receivable from participants are charged directly to the participant’s accounts and are included in administrative expenses. Investment related expenses are included in net appreciation of fair value of investments.
Note 3. Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:
Level 1 Quoted prices in active markets for identical assets
| Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets |
| Level 3 | Unobservable inputs supported by little or no market activity and that are significant to the fair value of the assets |
5
The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2019 and 2018.
Mutual Funds: Valued at the daily closing price as reported by the fund. Mutual funds held by the Plan are open-end mutual funds that are registered with the Securities and Exchange Commission. These funds are required to publish their daily net asset value (NAV) and to transact purchases and sales at that price. The mutual funds held by the Plan are deemed to be actively traded.
Common Trust Funds and Pooled Separate Accounts: Valued based on the NAV of units of the common collective trust. The NAV, as provided by the trustee, is used as a practical expedient to estimating fair value. The NAV is based upon the fair value of the underlying investments comprising the trust less its liabilities. This practical expedient is not used when it is determined to be probable that the fund will sell the investment for an amount different than the reported NAV. Investments in common trust funds valued at NAV as a practical expedient can generally be redeemed daily.
Employer Common Stock: Valued at the closing price reported on the active market on which the Employer Common Stock is traded.
The methods described above may produce a fair value calculation that is not indicative of net realizable value or future fair values. Furthermore, although the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
Recurring Measurements
The following table presents the fair value measurements of assets recognized in the accompanying statements of Net Assets Available for Benefits measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2019 and 2018:
|
| Net Assets at Fair Value as of December 31, 2019 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Employer Common Stock |
| $ | 6,335,331 |
|
| $ | — |
|
| $ | — |
|
| $ | 6,335,331 |
|
Mutual Funds |
|
| 839,990 |
|
|
| — |
|
|
| — |
|
|
| 839,990 |
|
Total Investments Measured at Fair Value |
| $ | 7,175,321 |
|
| $ | — |
|
| $ | — |
|
|
| 7,175,321 |
|
Investments Measured at Net Asset Value (A) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Trust Funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,366,362 |
|
Pooled Separate Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 29,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 11,571,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net Assets at Fair Value as of December 31, 2018 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Employer Common Stock |
| $ | 4,530,332 |
|
| $ | — |
|
| $ | — |
|
| $ | 4,530,332 |
|
Mutual Funds |
|
| 730,527 |
|
|
| — |
|
|
| — |
|
|
| 730,527 |
|
Total Investments Measured at Fair Value |
| $ | 5,260,859 |
|
| $ | — |
|
| $ | — |
|
|
| 5,260,859 |
|
Investments Measured at Net Asset Value (A) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Trust Funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,768,475 |
|
Pooled Separate Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 8,036,034 |
|
| (A) | The investment measured at fair value using the net asset value per share (or its equivalent) practical expedient has not been classified in the fair value hierarchy. The fair value amount included above is intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Statements of Net Assets Available for Benefits. |
There have been no significant changes in the valuation techniques during the year ended December 31, 2019. The Plan had no liabilities measured at fair value on a recurring basis. In addition, the Plan had no assets or liabilities measured at fair value on a nonrecurring basis.
6
The Plan’s investments, including gains and losses on investments bought and sold, as well as assets held during the year, appreciated in value by $2,437,408 during the Plan year ended December 31, 2019.
Note 5. Plan Termination
Although it has not expressed any intent to do so, the Bank has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants would become 100% vested in employer contributions, and earnings thereon, credited to their accounts.
Note 6. Tax Status
The Plan has received a determination letter from the Internal Revenue Service (IRS) stating that the Plan and related trust are designed in accordance with applicable sections of the Code. The Plan administrator believes that the Plan is designed, and is currently being operated, in compliance with the applicable requirements of the Code and therefore, believes that the Plan is qualified, and the related trust is tax-exempt.
U.S. generally accepted accounting principles require Plan management to evaluate tax positions taken by the Plan and recognize a tax liability if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The Plan is subject to routine audits by taxing jurisdictions.
Note 7. Party-in-Interest Transactions
The Plan allows funds to be invested in the common stock of the Company, the parent company of the Plan Sponsor. Therefore, the Company is a party-in interest. Investment in employer securities is allowed by ERISA and the United States Department of Labor’s Rules and Regulations, and the fair value of the employer common stock is based on quotes from an active market.
The Plan’s investments are held in a trust account administered by Delaware Charter Guarantee & Trust Company d/b/a Principal Trust Company. Active participants can purchase the common stock of the Company. At December 31, 2019 and 2018, participants held 275,449 and 265,553 shares, respectively.
Principal Trust Company provides certain administrative services to the Plan pursuant to an agreement between the Plan and Principal Trust Company. The expenses that can be paid from the participant’s account have to meet certain requirements and must be paid from all accounts in a fair manner. The participant’s share of these plan expenses is paid by a portion of the investment management fees and other expenses that apply to each specific investment in your account.
Note 8. Risks and Uncertainties
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances.
Note 9. Reconciliation to Form 5500:
Financial information reported on the 2019 and 2018 Form 5500, Annual Return/Report of Employee Benefit Plans, differs from the Plan’s financial statements as follows:
|
| 2019 |
|
| 2018 |
| ||||||
|
| Net Assets Available for Benefits |
|
| Net Increase (Decrease) in Net Assets Available for Benefits |
|
| Net Assets Available for Benefits |
| |||
As reported on Form 5500 |
| $ | 11,754,263 |
|
| $ | 3,538,306 |
|
| $ | 8,215,957 |
|
Contributions receivable |
|
| — |
|
|
| (33,200 | ) |
|
| 33,200 |
|
As reported on the financial statements |
| $ | 11,754,263 |
|
| $ | 3,505,106 |
|
| $ | 8,249,157 |
|
7
Note 10. Prohibited Transactions
During the Plan year ended December 31, 2019, the Company failed to remit employee deferrals within the period prescribed by the Department of Labor regulations to the Plan aggregating $326,138. The Company estimated the amount of corrective payments and lost earnings due to this error and determined the amount is immaterial. The Company corrected this error during 2019.
Note 11. Subsequent Events
There are two types of subsequent events: (1) recognized events, which are events that provide additional evidence about conditions that existed at the date of the financial statements, including estimates inherent in the process of preparing the financial statements, and (2) no recognized events, which are events that provide evidence about conditions that did not exist at the date of the financial statements but arose after that date.
As a result of the spread of COVID-19 coronavirus, economic uncertainties have arisen which have resulted in significant volatility in the investment markets, resulting in a substantial decline in the value of the investments. The duration of these uncertainties and the ultimate financial effects cannot be reasonably estimated at this time.
8
MainStreet Bank 401(k) Plan
Schedule of Delinquent Participant Contributions
Form 5500, Schedule H, Part IV, Line 4a
EIN 47-0914596 Plan No. 8-11744
Year Ended December 31, 2019
Participant Contributions Transferred Late to Plan |
| Total that Constitutes Non-exempt Prohibited Transactions |
| |||||
Year |
| Contributions Not Corrected |
|
| Contributions Corrected Outside of VFCP |
| ||
2017 |
|
| — |
|
| $ | 24,750 |
|
2018 |
|
| — |
|
|
| 24,500 |
|
2019 |
|
| — |
|
|
| 276,888 |
|
Total |
|
| — |
|
| $ | 326,138 |
|
Participant contributions were inadvertently not remitted timely during the year ended December 31, 2019. The Plan made all corrections in 2019.
9
MainStreet Bank 401(k) Plan
Schedule H, Line 4i – Schedule of Assets (Held at End of Year)
EIN 47-0914596 Plan No. 8-11744
December 31, 2019
Identity of Issuer | Interest Rate | Value |
| |
|
|
|
|
|
Common Stock |
|
|
|
|
MainStreet Bancshares, Incorporated* |
| $ | 6,335,331 |
|
|
|
|
|
|
Mutual Funds |
|
|
|
|
American Beacon Small Cap Value R6 Fund |
|
| 48,340 |
|
American Century Mid-Cap Value R6 Fund |
|
| 33,312 |
|
American Funds American Balanced R6 Fund |
|
| 102,381 |
|
American Funds American Mutual R6 Fund |
|
| 6,140 |
|
American Funds Capital World Growth and Income R6 Fund |
|
| 35,260 |
|
American Funds EuroPacific Growth R6 Fund |
|
| 91,283 |
|
American Funds Fundamental Investor R6 Fund |
|
| 49,800 |
|
American Funds Growth Fund of America R6 Fund |
|
| 63,246 |
|
American Funds New Economy R6 Fund |
|
| 44,390 |
|
American Funds New World R6 Fund |
|
| 83,820 |
|
American Funds SMALLCAP World R6 Fund |
|
| 84,191 |
|
American Funds Washington Mutual Investors R6 Fund |
|
| 8,698 |
|
BlackRock Global Allocation K Fund |
|
| 653 |
|
BlackRock High Yield Bond K Fund |
|
| 18,821 |
|
Columbia Select Small Cap Value I3 Fund |
|
| 30,826 |
|
Delaware Diversified Income R6 Fund |
|
| 14,821 |
|
Fidelity Advisor New Insights Z Fund |
|
| 18,920 |
|
PIMCO Income Institutional Fund |
|
| 1,912 |
|
Principal Fixed Income Guaranteed Option |
|
| 3,863 |
|
T. Rowe Price Blue Chip Growth I Fund |
|
| 94,885 |
|
Templeton Global Bond R6 Fund |
|
| 4,428 |
|
|
|
| 839,990 |
|
Common Trust Funds |
|
|
|
|
Principal LifeTime Hybrid 2010 CIT Z |
|
| 155,328 |
|
Principal LifeTime Hybrid 2015 CIT Z |
|
| 260,050 |
|
Principal LifeTime Hybrid 2020 CIT Z |
|
| 95,003 |
|
Principal LifeTime Hybrid 2025 CIT Z |
|
| 800,579 |
|
Principal LifeTime Hybrid 2030 CIT Z |
|
| 571,817 |
|
Principal LifeTime Hybrid 2035 CIT Z |
|
| 787,306 |
|
Principal LifeTime Hybrid 2040 CIT Z |
|
| 517,125 |
|
Principal LifeTime Hybrid 2045 CIT Z |
|
| 467,853 |
|
Principal LifeTime Hybrid 2050 CIT Z |
|
| 431,280 |
|
Principal LifeTime Hybrid 2055 CIT Z |
|
| 213,564 |
|
Principal LifeTime Hybrid 2060 CIT Z |
|
| 37,279 |
|
Principal LifeTime Hybrid 2065 CIT Z |
|
| 29,178 |
|
|
|
| 4,366,362 |
|
Pooled Separate Account |
|
|
|
|
Principal Real Estate Securities Separate Account-Z |
|
| 26,357 |
|
Principal Government & High Quality Bond Separate Acct-Z |
|
| 3,012 |
|
|
|
| 29,369 |
|
|
|
|
|
|
Notes Receivable from Participants with various maturity |
|
|
|
|
dates through 2049 | 5.25% - 7.50% |
| 183,211 |
|
Total Assets Held for Investment |
| $ | 11,754,263 |
|
*Denotes a party-in-interest to the Plan
10
The Plan pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
|
| MainStreet Bank 401(k) Plan | |
|
|
|
|
Date: June 23, 2020 |
| By: | /s/ Thomas J. Chmelik |
|
|
| Name: Thomas J. Chmelik |
|
|
| Title: Plan Administrator |
11
Exhibit Number |
| Description |
23.0 |
| |
|
|
|
|
|
|
12