MainStreet Bancshares Inc. Reports a Profitable First Quarter

PR Newswire

Mon, Apr 22, 2024, 5:00 AM 8 min read

"Our loan portfolio was well-positioned for the current interest rate cycle and continues to generate strong and sustainable interest income. During the first quarter of 2024, we experienced an uptick in deposit costs, compressing the net interest margin to 3.24%," said Jeff W. Dick, Chairman & CEO of MainStreet Bancshares, Inc. and MainStreet Bank. "We are focused on improving our funding costs for the remainder of 2024 and anticipate that our cumulative performance ratios will reflect our ability to do so, as we build for the future and deliver positive returns to our shareholders."

The Company continues to experience strong asset quality with relatively low levels of past due and non-performing loans. It should be noted that multifamily housing in the Washington, D.C. metropolitan area is devoid of the type of rent controls experienced in New York City. Demand for housing in our market far outstrips supply and the rental markets are strong.

"Our lending team is very focused on their borrowers and relationships at this time," said Tom Floyd, Chief Lending Officer at MainStreet Bank. "We want to make sure that if any issues or concerns do arise, we recognize them early in order to properly manage risk and work together toward positive outcomes."

"We are laser-focused on growing good business relationships throughout the metropolitan area," said Abdul Hersiburane, President of MainStreet Bank. "Our best source is our existing client base, as the quality of our service and attention to detail is second to none."

Banking-as-a-Service
The headlines were bleak in 2023 for several of the banks providing banking-as-a-service to fintechs. In one instance, consultant Kate Drew wrote, "The truth is many of the most jarring headlines have involved sponsor banks and fintech partners that had little to no relationship at all, and instead operated through a banking-as-a-service provider. That model is all but dead. In its place will likely emerge a more resilient proposition that puts the bank in the driver's seat when it comes to compliance and focuses on fintechs with sustainable businesses and realistic objectives in financial services." Drew, Kate (December 12, 2023), Where is Banking-as-a Service Headed in 2024? Forbes Media L.L.C.

"Our one miss was underestimating the amount of time it would take to build and launch the technology that we designed," said Dick. "With hindsight, the timing is perfect as we launch a solution that is purpose-built to meet the compliance and safety and soundness needs required not only by us but also by the industry. We are the resilient solution fintechs have been waiting for."

Avenu
Avenu is the only embedded banking solution that connects our partners and their apps directly and seamlessly to our purpose-built Avenu core solution. We are not a sponsor bank without our own technology, and we are not a middleware software company without our own bank. We are Avenu, a leading financial technology company owned by an established community bank in the heart of Washington, D.C.

Avenu's clients are fintechs, application developers, money movers, and entrepreneurs. They all have one thing in common: They are innovating how money moves to solve real-world issues and help communities thrive. We are focused on servicing our community and creating long-term business relationships.

About MainStreet Bank:
MainStreet operates six branches in Herndon, Fairfax, McLean, Leesburg, Clarendon, and Washington, D.C. MainStreet Bank has 55,000 free ATMs and a fully integrated online and mobile banking solution. The Bank is not restricted by a conventional branching system, as it can offer business customers the ability to Put Our Bank in Your Office^?. With robust and easy-to-use online business banking technology, MainStreet has "put our bank" in thousands of businesses in the metropolitan area.

MainStreet Bank has a robust line of business and professional lending products, including government contracting lines of credit, commercial lines and term loans, residential and commercial construction, and commercial real estate. MainStreet also works with the SBA to offer 7A and 504 lending solutions. From sophisticated cash management to enhanced mobile banking and instant-issue debit cards, MainStreet Bank is always looking for ways to improve our customer's experience.

MainStreet Bank was the first community bank in the Washington, D.C., metropolitan area to offer a full online business banking solution. MainStreet Bank was also the first bank headquartered in the Commonwealth of Virginia to offer CDARS and ICS – solutions that provides multi-million-dollar FDIC insurance. Further information can be obtained by visiting mstreetbank.com/ics-cdars.

This release contains forward-looking statements, including our expectations with respect to future events that are subject to various risks and uncertainties. The statements contained in this release that are not historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Words such as "may," "will," "could," "should," "expect," "plan," "project," "intend," "anticipate," "believe," "estimate," "predict," "potential," "pursuant," "target," "continue," and similar expressions are intended to identify such forward-looking statements. Factors that could cause actual results to differ materially from management's projections, forecasts, estimates and expectations include: fluctuation in market rates of interest and loan and deposit pricing, adverse changes in the overall national economy as well as adverse economic conditions in our specific market areas, adverse changes caused by geopolitical risks at the national and global level, adverse impact of a local, national or global health crisis, maintenance and development of well-established and valued client relationships and referral source relationships, and acquisition or loss of key production personnel. We caution readers that the list of factors above is not exclusive. The forward-looking statements are made as of the date of this release, and we may not undertake steps to update the forward-looking statements to reflect the impact of any circumstances or events that arise after the date the forward-looking statements are made. In addition, our past results of operations are not necessarily indicative of future performance.

MainStreet Bancshares, Inc UNAUDITED CONSOLIDATED BALANCE SHEET INFORMATION (In thousands)

	March 31, 2024		December 31, 2023*		September 30, 2023		June 30, 2023		March 31, 2023
ASSETS
Cash and cash equivalents
Cash and due from banks	$	49,208	$	53,581	$	44,912	$	67,700	$	225,334
Federal funds sold		75,533		60,932		76,271		30,341		—
Total cash and cash equivalents		124,741		114,513		121,183		98,041		225,334
Investment securities available for sale, at fair value		58,699		59,928		56,726		60,579		63,209
Investment securities held to maturity, at amortized cost, net of allowance for credit losses of $0 for all periods		17,251		17,275		17,565		17,590		17,616
Restricted equity securities, at amortized cost		23,924		24,356		20,619		20,304		22,436
Loans, net of allowance for credit losses of $16,531, $16,506, $15,626, $16,047, and $15,435, respectively		1,727,110		1,705,137		1,681,444		1,637,484		1,617,275
Premises and equipment, net		14,081		13,944		14,275		14,427		14,521
Accrued interest and other receivables		10,727		12,390		11,184		10,256		9,744
Computer software, net of amortization		15,691		14,657		13,373		12,266		10,559
Bank owned life insurance		38,609		38,318		38,035		37,763		37,503
Other assets		39,182		34,914		47,087		40,641		36,811
Total Assets	$	2,070,015	$	2,035,432	$	2,021,491	$	1,949,351	$	2,055,008
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Non-interest bearing deposits	$	348,945	$	364,606	$	394,859	$	388,992	$	487,875
Interest bearing demand deposits		165,331		137,128		76,423		71,308		100,522
Savings and NOW deposits		46,036		45,878		46,550		51,294		53,499
Money market deposits		446,903		442,179		461,398		380,500		260,316
Time deposits		725,520		696,336		703,960		701,289		730,076
Total deposits		1,732,735		1,686,127		1,683,190		1,593,383		1,632,288
Federal funds purchased		—		15,000		—		30,000		60,696
Federal Home Loan Bank advances		—		—		—		—		45,000
Subordinated debt		72,741		72,642		72,543		72,444		72,344
Other liabilities		41,418		40,146		52,015		43,016		39,692
Total Liabilities		1,846,894		1,813,915		1,807,748		1,738,843		1,850,020
Stockholders' Equity:
Preferred stock		27,263		27,263		27,263		27,263		27,263
Common stock		29,514		29,198		29,188		29,177		29,185
Capital surplus		65,940		65,985		65,407		64,768		64,213
Retained earnings		108,334		106,549		102,694		97,646		91,991
Accumulated other comprehensive loss		(7,930)		(7,478)		(10,809)		(8,346)		(7,664)
Total Stockholders' Equity		223,121		221,517		213,743		210,508		204,988
Total Liabilities and Stockholders' Equity	$	2,070,015	$	2,035,432	$	2,021,491	$	1,949,351	$	2,055,008

*Derived from audited financial statements

MainStreet Bancshares, Inc UNAUDITED CONSOLIDATED STATEMENTS OF INCOME INFORMATION (In thousands, except share and per share data)

	Three Months Ended
	March 31, 2024		December 31, 2023		September 30, 2023		June 30, 2023		March 31, 2023
INTEREST INCOME:
Interest and fees on loans	$	30,487	$	30,849	$	29,750	$	28,855	$	26,731
Interest on investment securities
Taxable securities		435		451		459		407		518
Tax-exempt securities		270		268		268		265		264
Interest on federal funds sold		1,182		1,510		1,217		1,179		1,132
Total interest income		32,374		33,078		31,694		30,706		28,645
INTEREST EXPENSE:
Interest on interest bearing demand deposits		1,860		1,058		240		251		343
Interest on savings and NOW deposits		157		146		145		147		108
Interest on money market deposits		5,178		5,639		4,156		2,926		1,203
Interest on time deposits		8,833		8,257		7,526		7,077		4,144
Interest on federal funds purchased		107		25		35		201		38
Interest on Federal Home Loan Bank advances		46		118		186		13		906
Interest on subordinated debt		820		828		828		820		812
Total interest expense		17,001		16,071		13,116		11,435		7,554
Net interest income		15,373		17,007		18,578		19,271		21,091
(Recovery of) provision for credit losses		(195)		466		255		638		283
Net interest income after (recovery of) provision for credit losses		15,568		16,541		18,323		18,633		20,808
NON-INTEREST INCOME:
Deposit account service charges		469		510		514		535		590
Bank owned life insurance income		292		283		272		259		255
Other non-interest income		130		68		177		16		158
Total other income		891		861		963		810		1,003
NON-INTEREST EXPENSES:
Salaries and employee benefits		7,488		7,129		6,924		6,595		7,621
Furniture and equipment expenses		935		804		713		772		498
Advertising and marketing		454		271		577		698		797
Occupancy expenses		435		397		375		426		486
Outside services		774		352		697		504		490
Administrative expenses		242		219		277		211		215
Other operating expenses		1,996		1,964		1,866		1,646		1,596
Total non-interest expenses		12,324		11,136		11,429		10,852		11,703
Income before income tax expense		4,135		6,266		7,857		8,591		10,108
Income tax expense		830		1,120		1,516		1,645		1,957
Net income		3,305		5,146		6,341		6,946		8,151
Preferred stock dividends		539		539		539		539		539
Net income available to common shareholders	$	2,766	$	4,607	$	5,802	$	6,407	$	7,612
Net income per common share, basic and diluted	$	0.36	$	0.61	$	0.77	$	0.85	$	1.01
Weighted average number of common shares, basic and diluted		7,611,990		7,527,327		7,524,332		7,522,764		7,517,213

MainStreet Bancshares, Inc UNAUDITED LOAN, DEPOSIT AND BORROWING DETAIL *(In thousands)*

	March 31, 2024					December 31, 2023					March 31, 2023					Percentage Change
	$ Amount		% of Total			$ Amount		% of Total			$ Amount		% of Total			Last 3 Mos			Last 12 Mos
LOANS:
Construction and land development loans	$	408,903		23.4	%	$	429,637		24.9	%	$	415,078		25.3	%		-4.8	%		-1.5	%
Residential real estate loans		451,991		25.8	%		474,602		27.5	%		391,648		23.9	%		-4.8	%		15.4	%
Commercial real estate loans		813,387		46.5	%		743,827		43.1	%		737,019		45.0	%		9.4	%		10.4	%
Commercial and industrial loans		71,822		4.1	%		75,415		4.4	%		86,937		5.3	%		-4.8	%		-17.4	%
Consumer loans		2,902		0.2	%		3,610		0.1	%		7,534		0.5	%		-19.6	%		-61.5	%
Total Gross Loans	$	1,749,005		100.0	%	$	1,727,091		100.0	%	$	1,638,216		100.0	%		1.3	%		6.8	%
Less: Allowance for credit losses		(16,531)					(16,506)					(15,435)
Net deferred loan fees		(5,364)					(5,448)					(5,506)
Net Loans	$	1,727,110				$	1,705,137				$	1,617,275
DEPOSITS:
Non-interest bearing deposits	$	348,945		20.1	%	$	364,606		21.6	%	$	487,875		29.9	%		-4.3	%		-28.5	%
Interest-bearing deposits:
Demand deposits		165,331		9.5	%		137,128		8.1	%		100,522		6.2	%		20.6	%		64.5	%
Savings and NOW deposits		46,036		2.7	%		45,878		2.7	%		53,499		3.3	%		0.3	%		-13.9	%
Money market accounts		446,903		25.8	%		442,179		26.2	%		260,316		15.9	%		1.1	%		71.7	%
Certificates of deposit $250,000 or more		467,892		27.0	%		442,662		26.3	%		458,683		28.1	%		5.7	%		2.0	%
Certificates of deposit less than $250,000		257,628		14.9	%		253,674		15.1	%		271,393		16.6	%		1.6	%		-5.1	%
Total Deposits	$	1,732,735		100.0	%	$	1,686,127		100.0	%	$	1,632,288		100.0	%		2.8	%		6.2	%
BORROWINGS:
Federal funds purchased		—		0.0	%		15,000		17.1	%		60,696		34.1	%		-100.0	%		-100.0	%
Federal Home Loan Bank advances		—		0.0	%		—		0.0	%		45,000		25.3	%		0.0	%		-100.0	%
Subordinated debt		72,741		100.0	%		72,642		82.9	%		72,344		40.6	%		0.1	%		0.5	%
Total Borrowings	$	72,741		100.0	%	$	87,642		100.0	%	$	178,040		100.0	%		-17.0	%		-59.1	%
Total Deposits and Borrowings	$	1,805,476				$	1,773,769				$	1,810,328					1.8	%		-0.3	%

Core customer funding sources ⁽¹⁾	$	1,312,746		72.7	%	$	1,252,534		70.7	%	$	1,156,279		63.9	%		4.8	%		13.5	%
Brokered and listing service sources ⁽²⁾		419,989		23.3	%		433,593		24.4	%		476,009		26.3	%		-3.1	%		-11.8	%
Federal funds borrowed		—		0.0	%		15,000		0.8	%		60,696		3.3	%		-100.0	%		-100.0	%
Federal Home Loan Bank advances		—		0.0	%		—		0.0	%		45,000		2.5	%		0.0	%		-100.0	%
Subordinated debt ⁽³⁾		72,741		4.0	%		72,642		4.1	%		72,344		4.0	%		0.1	%		0.5	%
Total Funding Sources	$	1,805,476		100.0	%	$	1,773,769		100.0	%	$	1,810,328		100.0	%		1.8	%		-0.3	%


(1)	Includes ICS, CDARS, and reciprocal deposits maintained by customers, which represent sweep accounts tied to customer operating accounts
(2)	Consists of certificates of deposit (CD) through multiple listing services and multiple brokered deposit services, as well as ICS and CDARS one-way certificates of deposit and regional money market accounts.
	Excludes $210.9 million in core deposits placed in reciprocal networks for FDIC insurance coverage that will be classified as brokered deposits on the call report in pursuant to rule 12 CFR 337.6(e) as of March 31, 2024.
(3)	Subordinated debt obligation qualifies as Tier 2 capital at the holding company and Tier 1 capital at the Bank

MainStreet Bancshares, Inc U NAUDITED AVERAGE BALANCE SHEETS, INTEREST AND RATES (In thousands)

	For the three months ended March 31, 2024							For the three months ended March 31, 2023
	Average Balance		Interest Income/ Expense (3)(4)		Average Yields/ Rate (annualized) (3)(4)			Average Balance		Interest Income/ Expense (3)(4)		Average Yields/ Rate (annualized) (3)(4)
ASSETS:
Interest-earning assets:
Loans (1)(2)	$	1,728,761	$	30,487		7.07	%	$	1,599,756	$	26,731		6.78	%
Securities:
Taxable		56,001		435		3.12	%		57,600		518		3.65	%
Tax-exempt		37,420		342		3.66	%		37,941		334		3.57	%
Federal funds and interest bearing deposits		91,993		1,182		5.15	%		118,670		1,132		3.87	%
Total interest-earning assets	$	1,914,175	$	32,446		6.80	%	$	1,813,967	$	28,715		6.42	%
Other assets		123,294							71,704
Total assets	$	2,037,469						$	1,885,671
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	146,248	$	1,860		5.10	%	$	83,388	$	343		1.67	%
Savings and NOW deposits		44,219		157		1.42	%		51,943		108		0.84	%
Money market deposit accounts		433,654		5,178		4.79	%		225,037		1,203		2.17	%
Time deposits		710,019		8,833		4.99	%		673,441		4,144		2.50	%
Total interest-bearing deposits	$	1,334,140	$	16,028		4.82	%	$	1,033,809	$	5,798		2.27	%
Federal funds borrowed		7,476		107		5.74	%		2,965		38		5.20	%
FHLB advances		3,297		46		5.60	%		77,833		906		4.72	%
Subordinated debt		72,703		820		4.52	%		72,306		812		4.55	%
Total interest-bearing liabilities	$	1,417,616	$	17,001		4.81	%	$	1,186,913	$	7,554		2.58	%
Demand deposits and other liabilities		397,753							497,155
Total liabilities	$	1,815,369						$	1,684,068
Stockholders' Equity		222,100							201,603
Total Liabilities and Stockholders' Equity	$	2,037,469						$	1,885,671
Interest Rate Spread						1.99	%						3.84	%
Net Interest Income			$	15,445						$	21,161
Net Interest Margin						3.24	%						4.73	%


(1)	Includes loans classified as non-accrual
(2)	Total loan interest income includes amortization of deferred loan fees, net of deferred loan costs
(3)	Income and yields for all periods presented are reported on a tax-equivalent basis using the federal statutory rate of 21%
(4)	Refer to Appendix for reconciliation of non-GAAP measures

MainStreet Bancshares, Inc UNAUDITED SUMMARY FINANCIAL DATA (Dollars in thousands except per share data)

	At or For the Three Months Ended
	March 31,
	2024			2023
*Per share Data and Shares Outstanding*
Earnings per common share (basic and diluted)	$	0.36		$	1.01
Book value per common share	$	25.72		$	23.62
Tangible book value per common share⁽²⁾	$	23.66		$	22.22
Weighted average common shares (basic and diluted)		7,611,990			7,517,213
Common shares outstanding at end of period		7,614,090			7,524,277
*Performance Ratios*
Return on average assets (annualized)		0.65	%		1.75	%
Return on average equity (annualized)		5.97	%		16.40	%
Return on average common equity (annualized)		5.69	%		17.71	%
Yield on earning assets (FTE) ⁽²⁾ (annualized)		6.80	%		6.42	%
Cost of interest bearing liabilities (annualized)		4.81	%		2.58	%
Net interest spread (FTE)⁽²⁾		1.99	%		3.84	%
Net interest margin (FTE)⁽²⁾ (annualized)		3.24	%		4.73	%
Noninterest income as a percentage of average assets (annualized)		0.18	%		0.22	%
Noninterest expense to average assets (annualized)		2.43	%		2.52	%
Efficiency ratio⁽³⁾		75.77	%		52.97	%
*Asset Quality*
Allowance for credit losses (ACL)
Beginning balance, ACL - loans	$	16,506		$	14,114
Add: current expected credit losses, nonrecurring adoption		—			895
Add: recoveries		2			11
Less: charge-offs		(141)			—
Add: provision for (recovery of) credit losses - loans		164			415
Ending balance, ACL - loans	$	16,531		$	15,435

Beginning balance, reserve for unfunded commitment (RUC)	$	1,009		$	—
Add: current expected credit losses, nonrecurring adoption		—			1,310
Add: provision for (recovery of) unfunded commitments, net		(359)			(132)
Ending balance, RUC	$	650		$	1,178
Total allowance for credit losses	$	17,181		$	16,613

Allowance for credit losses on loans to total gross loans		0.95	%		0.94	%
Allowance for credit losses to total gross loans		0.98	%		1.01	%
Allowance for credit losses on loans to non-performing loans		1.78X			N/A
Net charge-offs (recoveries) to average gross loans (annualized)		0.03	%		0.00	%
*Concentration Ratios*
Commercial real estate loans to total capital ⁽⁴⁾		364.65	%		372.12	%
Construction loans to total capital⁽⁵⁾		130.06	%		140.78	%
*Non-performing Assets*
Loans 30-89 days past due to total gross loans		0.22	%		0.00	%
Loans 90 days past due to total gross loans		0.51	%		0.00	%
Non-accrual loans to total gross loans		0.53	%		0.00	%
Other real estate owned	$	—		$	—
Non-performing loans	$	9,263		$	—
Non-performing assets to total assets		0.45	%		0.00	%
*Regulatory Capital Ratios (Bank only)⁽¹⁾***
Total risk-based capital ratio		17.05	%		16.35	%
Tier 1 risk-based capital ratio		16.12	%		15.49	%
Leverage ratio		14.54	%		14.69	%
Common equity tier 1 ratio		16.12	%		15.49	%
*Other information*
Closing stock price	$	18.16		$	23.49
Tangible equity / tangible assets ⁽²⁾		10.10	%		9.51	%
Average tangible equity / average tangible assets ⁽²⁾		10.24	%		10.22	%
Number of full time equivalent employees		191			170
Number of full service branch offices		6			6


(1)	Regulatory capital ratios as of March 31, 2024 are preliminary
(2)	Refer to Appendix for reconciliation of non-GAAP measures
(3)	Efficiency ratio is calculated as non-interest expense as a percentage of net interest income and non-interest income
(4)	Commercial real estate includes only non-owner occupied and construction loans as a percentage of Bank capital
(5)	Construction loans as a percentage of Bank capital

MainStreet Bancshares, Inc Unaudited Reconciliation of Certain Non-GAAP Financial Measures (Dollars In thousands)

	For the three months ended March 31,
	2024			2023
Net interest margin (FTE)
Net interest income (GAAP)	$	15,373		$	21,091
FTE adjustment on tax-exempt securities		72			70
Net interest income (FTE) (non-GAAP)		15,445			21,161

Average interest earning assets		1,914,175			1,813,967
Net interest margin (GAAP)		3.22	%		4.72	%
Net interest margin (FTE) (non-GAAP)		3.24	%		4.73	%

	For the three months ended March 31,
	2024			2023
Yield on earning assets (FTE)
Total interest income	$	32,374		$	28,645
FTE adjustment on tax-exempt securities		72			70
Total interest income (FTE) (non-GAAP)		32,446			28,715

Average interest earning assets		1,914,175			1,813,967
Yield on earning assets (GAAP)		6.78	%		6.40	%
Yield on earning assets (FTE) (non-GAAP)		6.80	%		6.42	%

	For the three months ended March 31,
	2024			2023
Net interest spread (FTE)
Yield on earning assets (GAAP)		6.78	%		6.40	%
Yield on earning assets (FTE) (non-GAAP)		6.80	%		6.42	%

Yield on interest-bearing liabilities		4.81	%		2.58	%
Net interest spread (GAAP)		1.97	%		3.82	%
Net interest spread (FTE) (non-GAAP)		1.99	%		3.84	%

	As of March 31,
	2024			2023
Tangible common stockholders' equity
Total stockholders' equity (GAAP)	$	223,121		$	204,988
Less: intangible assets		(15,691)			(10,559)
Tangible stockholders' equity (non-GAAP)		207,430			194,429
Less: preferred stock		(27,263)			(27,263)
Tangible common stockholders' equity (non-GAAP)		180,167			167,166

Common shares outstanding		7,614,090			7,524,277
Tangible book value per common share (non-GAAP)	$	23.66		$	22.22

	As of March 31,
	2024			2023
Total tangible assets
Total assets (GAAP)	$	2,070,015		$	2,055,008
Less: intangible assets		(15,691)			(10,559)
Total tangible assets (non-GAAP)		2,054,324			2,044,449

	For the three months ended March 31,
	2024			2023
Average tangible stockholders' equity
Total average stockholders' equity (GAAP)	$	222,100		$	201,603
Less: average intangible assets		(15,078)			(9,879)
Total average tangible stockholders' equity (non-GAAP)		207,022			191,724

	For the three months ended March 31,
	2024			2023
Average tangible assets
Total average assets (GAAP)	$	2,037,469		$	1,885,671
Less: average intangible assets		(15,078)			(9,879)
Total average tangible assets (non-GAAP)		2,022,391			1,875,792