MainStreet Bancshares, Inc. Q1 FY2025 earnings call

• Discontinued the Avenue banking-as-a-service initiative, focusing on the Core Bank.
• Net interest margin improved to 3.3% due to balance sheet management, including repricing $113 million of retail CDs in Q4 2024, $58 million in Q1 2025, replacing $112 million in wholesale CDs, and increasing low-cost transactional deposits by $74 million.
• Loan portfolio had nominal net growth, with various segments showing growth/decline. Non-performing loans held steady at $21.7 million, with a court-approved payoff in June expected to reduce it to $10.5 million. Classified loans showed improvement with $26 million near completion, $7.8 million leased and paying, and $400,000 credit secured by securities.
• Plan to reduce operating expenses by 12.5% in Q2 and continue reductions in remaining quarters through staff layoffs, contract terminations, and efficiency initiatives.

In the first quarter of 2025, MainStreet Bancshares Inc reported earnings per common share of $0.25, a return on average assets of 0.46%, and a return on average equity of 4.78%. The net interest margin was 3.3%, up 34 basis points from the previous quarter. On the loan portfolio front, non-owner occupied commercial real estate loans grew $25 million to 31% of the portfolio, residential real estate was flat at 11%, construction loans were down $47 million at 19%, C&I loans were flat at 8%, multi-family loans grew $12 million to 13%, and owner occupied real estate loans grew $6 million to 20%. The deposit portfolio mix was resilient and consistent, and the bank was overseeing the loan-to-deposit ratio intently to maximize net interest income.

• Anticipates net interest margin expansion in coming quarters due to $223 million in CD maturities in 2025, with accretive rates expected.
• Plans to reduce operating expenses by 12.5% in Q2 and continue expense reductions in remaining quarters.
• Expect improvement in classified loans and normalization of non-performing loans as work progresses on non-performing assets.

• Impact of administration, Congress, and DC government actions on business strategy.
• Market volatility affecting liquidity and pricing opportunities.
• Risks associated with commercial real estate, including potential domino effects from struggling properties.
• Uncertainties in cannabis banking due to federal legality issues.

Q: I am, here Jeff. Thank you very much for hosting us all today. I guess I'll start with the share count. I know you did the buyback that Alex talked about, but shares were still higher for the end of period and I just want to get a little more background on that.

A: Yeah absolutely Chris. So you know part of our employee compensation plan is that employees can have a portion of their compensation in restricted shares and so though when those are issued and then they vest in January of each year. And so naturally, the first quarter of every year, we see an increase in the share count due to those shares vesting in that quarter.

Q: And from a standpoint of Avenue and the strategic decision there, does that have any impact on deposits in this current quarter and does that at all change your regular core deposit gathering as you shift back to the core bank going forward?

A: It doesn't have any impact on the deposits that we currently hold. The Avenue team has historically done some other work that predated what we were building and we continue to do that work. And in fact, there's one or two opportunities that they're pursuing that could actually enhance the balance still with the remaining operation people.

Q: How much of the cost reduction shown on slide 12 relates to shutting down Avenue and how much is other cost reduction efforts?

A: Yeah, what you're seeing there is nearly all related to the shift from Avenue.

Q: Do you have any CRE loans occupied by any federal Gov agencies?

A: No, we don't have any CRE loans where we have leases to the federal government directly. So we're keeping an eye on how that could impact our market overall, but to answer that question, no, we don't have any of those.