MainStreet Bancshares, Inc.

Good afternoon, everyone, and thank you for joining our earnings webcast. My name is Jeff Dick, and I'm the chairman and CEO of Main Street Bank Shares, Inc. and Main Street Bank. I'm joined here today with our chief accountant, Alex Vary, our chief lending officer, Tom Floyd, and our chief financial officer, Tom Schmellick. As you can see, we're off camera today, but everything else is the same. Chris Marinak, Director of Research for Jani Montgomery Scott, will join us at the end of the call today with his questions. If you'd like, you can also submit written questions throughout the presentation using the web portal. We will address your questions at the end of the presentation. If we happen to miss your question, please reach out after the webcast. We'll start by pointing out our Safe Harbor page that describes the context of forward-looking statements. We use certain non-GAAP measures which are identified as such within the presentation materials. The DC metropolitan area is much more than just host to the federal government. With our major universities, tourism, data centers, world-class medical facilities, and Fortune 500 companies, it is a great place to do business. We have low unemployment and good median household incomes. Housing is still undersupplied and it remains a seller's market. The exception to that is the condo market, which generally picks back up when interest rates get closer to the 5% range. While the market is vibrant and we see opportunity, we are affected by the actions taken by the administration, Congress, and the DC government. And we continually monitor those actions to assess their impact on our business strategy. Slide four is just a quick reminder of our growth story over the past 20 plus years now. We are a Virginia community bank serving the Washington DC metropolitan area, and we have a great organic growth story using a branch light strategy. We trade on the NASDAQ Capital Markets Exchange, and current indications point to us returning to the Russell 2000 Index. Before I turn the presentation over to Alex, I will highlight the four key takeaways that you will hear during today's presentation. The first, we've discontinued our Avenue Banking as a Service initiative, and we're devoting our energy to the core bank. The second is that the net interest margin is up 34 basis points from the previous quarter to 3.3%. The third is that non-performing loans are holding steady at 21.7 million, and we will see that number reduced to just 10.5 million with a court approved payoff coming this June. And the fourth is while loan demand remains strong, we are slowing our investor CRE lending until we see some political and economic stability. At this point, I will turn the presentation over to our Chief Accountant, Alex Verri.

Thank you, Jeff. On slide seven, we summarize our financial performance for the first quarter of 2025. Earnings per common share of 25 cents, a return on average assets of 0.46%, a return on average equity of 4.78%, and a strong net interest margin of 3.3%. We've had a strong start to the year as our net interest margin is trending very positively as a result of our balance sheet management over the last several months. We are seeing positive resolutions on our few non-performing loans, and we are excited by the loan and deposit opportunities we are seeing in the marketplace. On slide eight, you will see we are overseeing our loan to deposit ratio intently to maximize our net interest income. We operate in a very competitive market where we need to balance wholesale funding, which at times can be a cheaper source of funding than typical core deposits. You will see later in the presentation that we adjusted our deposit stack to take advantage of pricing opportunities as they arose. Lastly, on this slide, we continue to add depth to our liquidity funding sources, particularly in our secured line credit availability. As of the quarter end, we have credit facilities for over 35% of our deposit portfolio. Slide nine shows resilience and consistency in our deposit portfolio mix. Moving to slide 10, you will see the result of a strategic balance sheet management decisions made in late Q4 and throughout the early part of Q1. We have been very focused on reducing our funding costs and expanding our net interest margin. And this is a result I'm very proud of. I wanted to provide specifics on what helped drive this expansion and what opportunities still lie ahead for the remainder of the year. During Q4 2024, we had roughly 113 million of retail CDs reprice from a weighted average rate of 5.13% to a market rate that was almost 100 basis points less. We had an additional 58 million repriced throughout the first quarter of 2025. Also during the first quarter, we replaced or called away entirely 112 million in wholesale CDs with a weighted average rate of 5.12% to a rate that was 71 basis points lower. We also increased non-interest bearing and low cost transactional deposits by 74 million throughout the quarter. Looking forward, we have opportunities to enhance our net interest margin in the coming quarters, given a stable or decreasing rate environment. We have a nice laddering of 223 million in CDE maturities throughout 2025, with 111 million during Q2, 40 million in Q3, and 112 million in the final quarter. While these maturities won't have the same outsized impact as the first quarter, almost all will be at accretive rates given the current yield curve. These strategic decisions coupled with our historic attractive loan pricing set the stage for meaningful net interest margin expansion during the first quarter and energy into the second quarter as we realize the full impact of the first quarter opportunities. Slide 11 summarizes a lot of the detail I just described to you. And you can see the steps we've taken to optimize pricing opportunities and continue to find ways to decrease our funding costs throughout our deposit stack. We believe we are well positioned to capitalize on additional pricing opportunities in the market, particularly as market volatility has more liquidity coming back into the banking system overall. Slide 12 provides a look at our non-interest expense assumptions for the remainder of the year. You can see we have set out a plan to increase efficiency and drive expenses back to levels we saw in 2023 that helped drive our most profitable year in the company's history. We anticipate a 12.5% decrease in operating expenses during the second quarter and continued expense reductions for the remaining two quarters as laid out on the slide. Lastly, before I turn it over to Tom here, we typically get questions regarding stock buybacks. In January, we had the opportunity to purchase just under 25,000 shares at $17.88 per share, which was accretive to book value. That leaves an additional space in our current buyback plan of just over $3 million. We will continue to look at opportunities to execute buybacks in line with our strategy. At this point, I'll turn the presentation over to Tom Floyd, our Chief Lending Officer, to discuss our loan portfolio and loan performance.

Tom Floyd Thank you, Alex. Over the first quarter, our team has done an excellent job managing risk in a dynamic environment. Over the next few minutes, I'm excited to share details and trends about our portfolio composition, highlight some of the actions we're taking to actively manage risk, provide details on our credit quality, and discuss the breakdown of our growths. Coupled with our commitment to serving our vibrant client base, we remain optimistic about the future. Our loan portfolio had nominal net growth of one million in terms of total gross loans quarter on quarter. While the growth here is nominal, I'm happy to report that we did this while simultaneously lowering our total commercial real estate holdings. This slide highlights the diversity of our loan portfolio. The non-owner-occupied commercial real estate loans grew $25 million and ended at 31% of the portfolio. This growth was attributable to the completion of construction projects that have now transitioned to their various call code, such as hospitality, industrial, mixed-use, retail, and a small amount of office. Residential real estate accounts for 11% of the portfolio and was flat during Q1. Construction loans account for 19 percent of the portfolio and were down 47 million during the quarter. CNI loans account for 8 percent of the portfolio and remained flat during Q1. Multifamily loans account for 13 percent of the portfolio and were up 12 million for the quarter. Finally, owner-occupied real estate loans make up 20 percent of the portfolio and were up 6 million over the quarter. One additional point to highlight is that of our construction book, 90% of those loans have interest payment reserves held at the bank. Slide 14 highlights our commercial real estate concentration over the last seven quarters. Through a combination of scheduled payoffs and loan participations, we've been able to reduce our commercial real estate capital ratio to 388% from 394% from the prior quarter. We anticipate this trend to continue into Q2 as we continue to manage our portfolio actively in the current environment. Slide 15 is a lens into our government contracting portfolio. Our portfolio has 29 asset-based lines of credit in place, where all advances are supported by a borrowing base of billed receivables. These receivables are deposited directly into our bank from our clients' respective customers, and the funds are used to automatically curtail their corresponding credit lines. As you can see, these 29 lines have balances of 9.2 million outstanding with total commitments of 80.9 million, which equates to an 11% utilization rate. Over the average loan's lifetime, this is relatively consistent, and the majority of our customers in this space are net depositors. Our entire government contracting book only has 2.9 million in outstanding term debt. These loans are amortizing rapidly with an average remaining term of 33 months. The next slide highlights that our loan portfolio is well positioned for stable or falling rates. 76% of our portfolio has rate resets beyond six months with the remaining 24% with rate resets within six months. Of those loans with a faster reset, 40% have a weighted average floor of 6.32%. As we progress in 2025, we anticipate this will help our net interest rate margin as rates are expected to remain stable or decrease. The next slide shows our trend in average new loan size moving downward, while our legal lending limit has increased. This highlights that in the current environment, we're sticking to smaller sized opportunities within our market. Slide 18 shows the trend in stress tests over the past eight quarters and the resulting impact to capital. The Q4 stress test for all earning assets reflects a worst case stress loss estimated at 44.2 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. Slide 19 highlights a specific non-performing asset that we have a legal resolution in place that we reached during the first quarter. This resolution will result in a sale that will repay the bank in full and bring our balance of non-performing loans down to 10.5 million at completion, which is a reduction of 52% of the current balance. Slide 20 shows that we expect to see improvement in our classified loans. 26 million of the classified loans are multifamily construction that are near completion and making progress. Our team is diligently working to find creative solutions to minimize any losses. 7.8 million are properties that are leased and paying as agreed. Finally, a $400,000 credit is fully secured by quality marketable securities and an upgrade in credit rating is likely. Slide 21 highlights our prudent balance sheet management and that our allowance for credit losses is directionally consistent with recent performance. As discussed in the stress testing slide, we remain strongly capitalized. Based on solid progress with our non-performing loans and our rigorous management of our loan portfolio, we anticipate this trend to normalize going forward. In summary, we've originated loans that when combined with portfolio runoff have kept our loan portfolio size even. At the same time, our portfolio has seen a decrease in total CRE loans, just as we told you that we expected last quarter. Our lending team has done an excellent job serving our clients in our market that has resulted in a superior yield on earning assets, and in more times than not, a demonstrated ability to exit relationships with minimal losses to principal values. We remain well capitalized and are working vigorously with our borrowers where there remain positive potential outcomes. We are passionate about serving our community. We love seeing it thrive and remain optimistic about the future. That wraps it up for our loan presentation. Back to you, Jeff.