MainStreet Bancshares, Inc.

Well, good afternoon, everyone, and thank you for joining our virtual earnings webcast. My name is Jeff Dick, and I'm the Chairman and CEO of Main Street Bank Shares, Inc. at Main Street Bank. I'm joined here today with our CFO, Tom Schmelleck, our Chief Lending Officer, Tom Floyd, and our Chief Accountant, Alex Ferry. We'll open for questions after today's presentation. We have two analysts on the webcast with us today, Chris Marinak from Janymet with Montgomery-Scotts and Matt Brees from Stevens, Inc. Both analysts will be able to ask their questions and share their comments directly following the presentation. You can submit written questions throughout the presentation using the viewing portal. If we miss your question during the discussion, please reach out after the webcast. You should know that we have not authorized the transcription of today's virtual meeting. Unauthorized transcripts may include errors, omissions, inaccuracies, and we don't encourage their use. We will post the video of this meeting on our website. Unauthorized transcripts also do not include our disclosures regarding forward-looking statements, SEC filings referenced in our slide presentation. On that note, we'd also be remiss if we didn't point you to our Safe Harbor page that describes the context of forward-looking statements. We use certain non-GAAP measures which are identified as such within our presentation materials. We are a Virginia community bank celebrating our 20th year of business. We serve the Washington, D.C. metropolitan area, and we have a great organic growth story using a branch light strategy. We've always been a tech-forward bank with strong online and mobile banking technology. We trade on the NASDAQ Capital Markets Index. The DC market is a great place to do business. We always talk about the strength of our market because we are in a region that hosts the federal government. But we also have world-class universities, hospital systems, airports, tourism data centers, and at least 16 Fortune 500 companies. As such, we also have low unemployment and a very high median household income for our workforce. We ended the quarter with a closing price of $17.73 and $135 million market cap. The closing price was 75% of tangible book value. At this point, I will turn the presentation over to Alex Berry. Alex is our Chief Accountant. He works with Tom Schmelleck to ensure the accuracy of all of our books and our records. Alex is going to talk you through our financial performance.

Thank you, Jeff. Slide 6 summarizes our financial performance over the past four quarters. The quarter is down, due primarily to increased deposit costs. I'll summarize it in the following five ratios. Our EPS is $0.27 per share. Our efficiency ratio is 78%. Our return on average assets is 0.5%. And our return on average equity is 4.7%. And our NIM is 3.15%. Our net loans increased $51.7 million for the quarter. And our total deposits increased $22.6 million. Total assets held relatively steady quarter on quarter as did net charge offs at eight one hundredths of a percent. Our liquidity remains strong with good ratios throughout. We have 517 million available in secured advances through the Federal Home Loan Bank of Atlanta and an additional 129 million in unsecured lines from six different providers. As you look at slide eight, you will see that our cumulative cycle loan beta is 54%, up slightly from year end 2023's 47%. Our cumulative cycle deposit beta is 63%. Again, up slightly from year end 2023's funding beta of 56%. Slide nine provides our monthly net interest margin. which is important because it provides additional support indicating what should be a nice leveling off of the NIM over the last several months. We have some very exciting opportunities in the pipeline in addition to Avenue that will continue to reduce our funding costs over the second half of the year and further improve our net interest margin. Our core deposits continue to increase and now represent 78% of total deposits. Non-interest-bearing demand deposits and low-cost demand deposits encompass 27% of core deposits, and the overall weighted average cost of core deposits is 3.48%. Non-core deposits represent 22% of total deposits with a weighted average rate of 5.04%. It is important to note that 62% of the non-core deposits are adjustable rate. Included in that 62% is 173 million of the term deposits with a weighted maturity of 39 months that are callable at our discretion. At this point, I'll turn the presentation over to Tom Floyd, our Chief Lending Officer, to discuss our loan portfolio and loan performance.

Thank you, Alex. As we look at the loan portfolio, it is worth remembering that so much of lending is about discipline. We have disciplined underwriting, which starts with an independent team of analysts. The team produces comprehensive credit memos that over the years have been commended by regulators, auditors, and loan review specialists. This is an important first step in controlling and minimizing the riskiness of the loans we underwrite. We finished the first half of the year with 1.8 billion in outstanding loans. Our legal lending limit was 47 million, and our average loan size was 1.9 million. As we generate new opportunities, We also give strong consideration to the discipline of loan pricing. We are a commodity business. We don't set interest rates. We set a risk spread, which we define in our credit risk policy. A loan pricing isn't just about setting the rate. It is also about setting the duration for the rate. Just as we focus on writing floating rate loans during the low flat interest rate cycle leading up to 2022, we've now shifted the portfolio so that 63% of the loans have fixed rates And of the 37% of loans with floating rates, 57% have floors, with a weighted average rate of 6.48%. Slide 15 shows that we manage our concentration on investor commercial real estate and construction well. This is our best asset, and it continues to perform at a very high level for us. A Federal Reserve Bank of Kansas City publication from April 18, 2024, did a nice job of identifying that banks' commercial real estate risks are uneven. they determined that CRE risks can vary substantially across property types and geographic locations, suggesting that aggregate CRE exposure may be a poor measure of risk. The publication goes on to say that banks' exposure to CRE risk depends on more than just loan concentrations. Other key factors include the stringency of the bank's underwriting, its willingness and ability to monitor existing borrowers, and the capital and loan loss provisions it holds against potential losses. Finally, the authors add, despite a relatively strong economic outlook, investors continue to closely assess the risks that commercial properties pose to banks, particularly those with sizable loan concentrations. Under closer examination, though, CRE risks are diverse and depend strongly on property type, property characteristics, and geographic location. Slide 16 shows the results of our hard work. we charged off 8.1% of gross loans in the second quarter. Only 1.15% of our total gross loans are non-performing. 76% of the non-performing loans are comprised of two projects where the principals encountered significant delays which exhausted their liquidity. Each project is fully leveraged and near completion. We're actively working toward near-term resolution for both projects. The remaining 24% non-performing assets consist of seven relationships that we feel will be favorably resolved. At this point, we estimate the loss exposure in non-performing loans to be less than 10% of the current balance. Just 2.74% of our total gross loans are criticized or classified at this time. We originated 73 million of new loans during the second quarter with a weighted average rate of 8.29% and with good loan-to-values. our pure office exposure is down to 13 million. Slide 19 reflects the construction portfolio that's diversified both by type and by location. The construction book has a weighted average interest rate of 8.68% with good loan to values throughout. It is important to note that 89% of the construction portfolio loans have payment reserves funded by the customers. The remaining 11% of construction loans are to customers with strong liquidity and a good track record of performance. Likewise, our non-owner-occupied commercial real estate is also diversified by type and location with a weighted average interest rate of 6.54%, good loan-to-values, and good occupancy. Our owner-occupied loans also reflect good diversification with a weighted average rate of 6.19% and good loan-to-values. Slide 22 shows the trend in stress tests over the past five quarters and the resulting impact of capital. The Q2 stress test for all earning assets reflects a worst case stress loss estimated 42.5 million. In all quarters, we remain strongly capitalized. The stress test includes loan level testing for all construction and investor commercial real estate. For all other loan categories, we use the balance in each call report category multiplied by our worst ever loss for that call report category. For investments, we use the market price and finally, For bank-owned life insurance, we determine the liquidation value. That wraps it up for our loan presentation. I'll turn it over to our CFO, Tom Schmelleck, now.