MainStreet Bancshares, Inc.

Good afternoon and thank you for joining our second quarter 2025 earnings webcast. My name is Jeff Dick. I am the Chairman and CEO of Main Street Bank Shares, Inc. and Main Street Bank. With me today is our Bank Chief Financial Officer, Alex Barry, our Chief Lending Officer, Tom Floyd, and our Company Chief Financial Officer, Tom Shmelick. Chris Marinak, Director of Research for Janney 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'll address your questions at the end of the presentation. If for some reason we miss your question during the discussion, please reach out to us after the webcast. I'd like to take a moment to point you to our Safe Harbor page that describes the context of forward-looking statements that we may make today. Please also know that we may use certain non-GAAP measures which are identified as such within the presentation materials. The D.C. metropolitan area is much more than host to just 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 still have low unemployment and good median household incomes. Housing is still undersupplied and it remains a seller's market. While the market is vibrant and we see good opportunities, we are affected by the actions taken by the federal and DC governments. And we monitor those actions to assess their impact on our business strategy. You'll see that slide four recaps our growth story, and there's not a whole lot more to say on that slide. The next slide, we're a Virginia community bank serving the Washington DC metropolitan area for over 21 years. We have a great organic growth story using a branch light strategy. M&SB is a small cap stock that trades on the NASDAQ Capital Markets Exchange and is listed on the Russell 2000 Index. As of quarter end, we traded at 78% of tangible book value. During today's presentation, you'll hear good news about our net interest margin expansion, our solid earnings, and our strong asset quality. And at this point, I'll turn the presentation over to our bank CFO, Alex Ferry.

Thank you, Jeff. On slide seven, we summarize our financial performance over the last five quarters, with this last quarter illustrating our commitment to be a high-achieving community bank. earnings per share increased to 53 cents, our return on average assets to 0.86%, our return on average tangible common equity to 8.84%, and our net interest margin to 3.75%. We are very excited to report such strong quarterly results. Contributing factors during the quarter included improvements in non-performing loans while recovering a meaningful amount of accrued interest, continuing to lower our cost of funds and improve our net interest margin. We are seeing good loan opportunities as we look at our third and fourth quarter pipeline. On slide eight, we recognize it's important to understand expectations for future quarters and want to call out a few one-time non-recurring transactions during the quarter on both the revenue and expense side. You can see we had non-recurring revenue of $1.5 million consisting of a recovery of accrued interest and fees on a previous loan in recognition of some non-interest income gains. Focusing on core community banking, we had non-recurring expenses of $1.8 million related to personnel downsizing, contract terminations, and realigning certain accruals. Without these non-recurring adjustments, our EPS would have been 56 cents and our return on average assets would have been 0.91%. Slide nine highlights our intentional management of our loan to deposit ratio to maximize our net interest income, which has increased for the third consecutive quarter. Our liquidity position remains strong with ample funding sources, particularly in our secured credit availability. As of the quarter end, we have liquidity in available credit facilities to match 38% of our deposit portfolio. Moving to slide 10, you will see continued improvement to our net interest margin. While we are reporting a quarterly net interest margin of 3.75%, our core net interest margin also showed meaningful expansion quarter over quarter. Our net interest margin rose primarily as our cost of funds continued to contract. our total funding costs reduced 20 basis points to 3.29% during the quarter. Looking at where the net interest margin is headed, we believe the margin will hold steady and could see progress as we have 152 million in CDs repricing in the second half of the year and a robust loan pipeline. Slide 11 shows resilience and consistency in our deposit portfolio mix. On slide 12, you will see our business banking team continues to attract and grow non-interest and low-cost deposits, helping to replace higher cost funding and expand our net interest margin. Core deposits remain consistent with the prior quarter, while non-interest bearing and low-cost deposits grew by $6 million during the quarter. We also reduced our reliance on non-core deposits by 19%, which was accretive to our net interest margin. Slide 13 lays out our estimated expense run rate for the remainder of the year. We continue to be committed to driving operating expense down as we focus on core community banking. We were able to achieve our strong quarterly performance at the current operating level. While we are projecting additional expense reductions, we have revised our estimations for the second half of the year that include operating costs of the community bank in a major metropolitan market. attracting and retaining talented bankers, expanding our customer footprint and the ever-growing regulatory burden our costs all community banks must face. We believe we are well positioned in the marketplace to build on our strong quarterly performance for the second half of the year. On slide 14, we typically get questions about stock buybacks. We have an active buyback plan in place with capacity of just over $3 million to repurchase shares. 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.

Thank you, Alex. I'm incredibly proud of the hard work everyone on the team put in during the second quarter, and our consistent, strong performance is a testament to that effort. Over the next few minutes, I'm excited to delve into the details and trends about our portfolio composition. I'll also highlight the proactive steps we're taking to actively manage risk. We've experienced positive trends in our workout credits, and I look forward to sharing more specifics on that as well. Our commitment to serving our community remains unwavering, and we are optimistic about what the future holds. Slide 15 provides an overview of our diversified loan portfolio as of the end of the quarter. Our total loan outstanding are $1.8 billion distributed as follows. 30% is non-owner-occupied commercial real estate. 21% is owner-occupied commercial real estate. 18% is construction. 14% is multifamily. 11% is residential real estate, and 6% is commercial and industrial. Additionally, it's worth noting that nearly all of our construction portfolio has a suitable interest reserve held at the bank. Slide 16 highlights our commercial real estate concentration over the last seven quarters. We've always effectively managed our exposure here and finished the quarter at 366% of capital. Our board sets our limit at 375%. So we've been strategically building our pipeline to maximize our opportunity to grow assets. And based on the pipeline and number of quality opportunities in our market, we're confident we can continue to operate at our comfort threshold. You may be familiar with the asset on slide 17, as we've discussed it in the last few presentations. Not all stories have a happy ending, but I'm happy to report this one does. we've collected 100% of principal, interest at the default rate, and all fees. This is the outcome we anticipated, and it's excellent to see this resolution come to pass. Slide 18 is a lens into our government contracting portfolio. Before I dive into this slide, I want to assure you that we're in constant contact with our borrowers in this highly dynamic space to ensure we're appropriately supporting our clients and effectively managing risk. 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 $13 million outstanding with total commitments of $79.2 million, which equates to a 16% utilization rate. Over the average line's lifetime, this is relatively consistent. Our entire government contracting book only has $2.5 million in outstanding term debt. These loans are amortizing rapidly with an average remaining term of 30 months. It's worth noting that the average deposit relationship attributable to this portfolio is $75.5 million over the quarter, which equates to 580% of outstandings and 95% of commitments. The next slide highlights that our loan portfolio is well positioned for stable or falling rates. 70% of our portfolio has rate resets beyond six months, with the remaining 30% with rate resets within six months. Of those loans with a faster reset, 45% have a weighted average floor rate of 6.5. As we progress in 2025, we anticipate this will help our net interest margin as rates are expected to remain stable or decrease. Slide 20 is a snapshot of our year-to-date production and volume of loans participated to other banks. As you'll see, our originations have resulted in 97 million outstanding in loans year-to-date, and we've participated out 13 million over the same period. This is a testament to our lending process, which is relationship-driven and supported by superior credit underwriting, resulting in strong market demand for our organic loan production. Slide 21 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 22 shows we have a nominal level of classified loans and non-performing assets. Slide 23 shows the trend in stress tests over the past eight quarters and the resulting impact to capital. The Q2 stress test for all earning assets reflects a worst case stress loss estimated at 46.79 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. In summary, our team has done an excellent job serving our clients while managing risk over the second quarter of 2025, and we continue to see our efforts with our workout credits pay off, no pun intended. We're passionate about serving our community and we love seeing it thrive, and we are optimistic about the future. That wraps it up for our loan presentation. Back to you, Jeff.