MainStreet Bank Q1 2026 Earnings Call Transcript

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April 20, 2026

Key Takeaways

  • Positive Sentiment: EPS rose to $0.48 and net interest margin expanded to 3.47% (results include a one-time $685k OREO loss), with buybacks and a 5% increase in net interest income driving the improvement.
  • Positive Sentiment: Liquidity strengthened — secured available line increased by $76 million to $663 million, with liquidity facilities now covering over 42% of deposits.
  • Positive Sentiment: Interest-rate risk is intentionally neutralized: over one-third of loans reprice within six months while 87% of time deposits reprice ratably over 12 months, positioning the bank for margin stability or expansion.
  • Neutral Sentiment: Credit remains resilient with low net charge-offs of $259,000 and a post‑stress CET1 of 11%, though non‑accruals (2.88%) are concentrated in two relationships and are being actively managed.
  • Positive Sentiment: Funding and efficiency progress — deposit costs down ~64 bps, 482,000 shares repurchased (≈$0.30 per‑share accretion), and management targeting a return to a low‑50s efficiency ratio.
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Earnings Conference Call
MainStreet Bank Q1 2026
00:00 / 00:00

There are 4 speakers on the call.

Speaker 2

Good afternoon, and thank you for joining our first quarter 2026 earnings webcast. My name is Jeff Dick. I am the Chairman and CEO of MainStreet Bancshares, Inc., and MainStreet Bank. With me today is our Chief Financial Officer, Alex Vari, and our Chief Lending Officer, Tom Floyd. Chris Marinac, 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 chat function on the web portal. This is a private chat that won't be visible to anyone else on the call. We will address your questions at the end of the presentation. If we miss your question during the discussion, please reach out after the webcast.

Speaker 2

I'd like to take a moment to point 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 the federal government. With our major universities, tourism, data centers, world-class medical facilities, and resident Fortune 500 companies, it continues to be a great place to do business. By the numbers, the median household income is up $10,000 year-over-year and is at $135,000. The average home listing price is $831,000, and the median days on market went from 29 days to 30 days. Still a seller's market. Federal Reserve economic data from December 2025 indicates that we have 684,000 government employees in the D.C. metropolitan area.

Speaker 2

Our market remains vibrant and we continue to see opportunities. We are, of course, tuned in to local, national, and global geopolitical activities and when things happen, we determine the potential impact to our market and to our business strategy. Over the past two years, we've been hovering around that $2.2 billion total asset mark. We've focused on smart balance sheet management, which has involved efforts to replace higher cost funding. We've made progress on that front, but we recognize that as a community business bank in the Washington, D.C. market, our ongoing funding costs may very well remain a little higher than our peers across the country. We opened our doors in May 2004 as a Virginia-chartered community bank. We've been rooted in the Washington, D.C. metropolitan community now for over 22 years. We often talk about having a branch-light strategy.

Speaker 2

It's worth a moment to frame how we got here. Many of you on the call today will remember that the Check Clearing for the 21st Century Act, also known as the Check 21 Act, gave us the ability to deposit a digital substitute check. That law was signed in October of 2003 and became effective one year later, which was shortly after we opened. We were purposeful with our put our bank in your office approach, but this was new and unfamiliar technology. Customer acquisition was a slog. Each customer that we acquired was both new to us and new to using this technology.

Speaker 2

The most common response we heard during those days was, "Well, we'll bank with you once you have a branch closer by." We solved this by strategically covering our market area with a small number of branches, as you can see from the inset on Slide 6. Today, we still host more customers on our Remote Deposit Capture solution than any bank our size in the country served by our core processor. We recently expanded our footprint to Middleburg, Virginia. Our seventh branch opened in early February, and the grand opening was held on April 8th with a good crowd of Middleburg business folk present. The team has been doing a phenomenal job building our market presence in the Middleburg community, having already accumulated over $100 million of low-cost core deposits.

Speaker 2

Slide 8 shows that MNSB is a small-cap stock that trades on the Nasdaq Capital Market and is listed on the Russell 2000 Index. As of quarter end, we traded at 87% of tangible book value. During today's presentation, you'll see directional consistency on our net interest margin, expense control, and earnings. Asset quality remains strong, and we are well capitalized. At this point, I will turn the presentation over to our CFO, Alex Vari.

Operator

Thank you, Jeff. On slide nine, we summarize our financial performance over the last five quarters. The first quarter of 2026 was defined by execution. We increased earnings per share to $0.48 by combining disciplined share repurchases with a 5% increase in net interest income after credit provision. Our net interest margin improved to 3.47%, while our Return on Average Assets and Return on Tangible Common Equity stand at 0.76% and 7.58%, respectively. It is important to note that these results include a non-recurring $685,000 loss on an Other Real Estate Owned disposition. We continue to be focused on becoming more efficient and have positioned ourselves for earnings growth in future quarters. Page 10 highlights our intentional management of our loan-to-deposit ratio to maximize our net interest income. Liquidity remains a fortress with abundant funding sources.

Operator

Our secured available line increased $76 million to $663 million during the first quarter. Our liquidity facilities now cover over 42% of our entire deposit portfolio. Moving to slide 11, you will see our net interest margin has expanded. The core portfolio is resilient, with the core net interest margin increasing to 3.54%. Over the last four quarters, we've recognized one-time events that appear in our reported net interest margin. We thought it was important to show the net interest margin without these non-recurring transactions. In Q2 2025, we recovered $1.3 million in interest from a non-performing asset, and in each of the last three quarters, we reversed interest on a small handful of loans we are working through. In fact, the average reported net interest margin across the last five quarters is 3.50%, which trends closely to the core net interest margin.

Operator

You can refer to our presentation of non-GAAP ratios at the back of the slide deck for additional details. Our credit culture is built on pricing for risk appropriately, which is evident in our resilient risk-adjusted yields. This calculated risk model allows us to absorb normalized credit fluctuations while still delivering margin expansion. On slide 12, you will see we've effectively neutralized the interest rate risk on the balance sheet. This provides us the ability to maintain margin stability regardless of the rate cycle. You might be thinking, "Well, how can that be?" I'd like to share a little bit more detail on how we've achieved that. Over one-third of our loan portfolio is variable or will reprice in the next six months, giving us quick asset sensitivity if rates increase.

Operator

Given that we are already operating in a highly competitive deposit pricing environment, we anticipate a lower deposit beta in response to any further rate hikes. You will see we are also positioned well for sharp decreases in rates. With 87% of our time deposits scheduled to reprice ratably over the next 12 months, we maintain the liability sensitivity that allows us to capture funding relief quickly. When coupled with our aggressive repricing strategy for variable deposits and robust floors across the loan portfolio, we are well positioned for margin expansion should the rate environment sharply soften instead. It's important to remember that this is just one tool that gives us insight into earnings over the near term. Turning to slide 13, you'll see a deposit mix that is a direct reflection of our disciplined business customer-focused strategy.

Operator

Over the last five quarters, we have both grown our deposit base while simultaneously lowering the overall cost by 64 basis points. Our progress is not just tied to the Fed's rate decisions. In the past 12 months, the FOMC lowered rates by 75 basis points. However, we have increased our interest-bearing deposits to 42% of the portfolio, while the yield on these deposits dropped 79 basis points. We have been aggressively repricing our deposits as demonstrated by our 67% funding beta for this rate reduction cycle. With the Fed forecast shifting to a flat rate outlook, we still have opportunities to lower funding costs through repricing maturing CDs, as I mentioned on the previous slide. However, we do expect the pace of impact to slow from previous quarters given the highly competitive market we serve and uncertain economic conditions.

Operator

Generally, as we've seen the yield curve start to steepen, we see opportunities for net interest margin expansion through our deposit optimization efforts on the short end, coupled with loan repricing and new loan growth, which tends to be on the 5-year part of the curve. Slide 14 lays out our estimated expense run rate for the remainder of the year. The company has been diligent with expense control throughout the first quarter and expect to maintain that momentum. Our loan growth expectations are 3%-5% for 2026. On Slide 15, we demonstrate how our share repurchase program has positively impacted our existing shareholders. Over the last two quarters, we repurchased over 482,000 shares, resulting in $0.30 per share accretion. The board will consider future buyback programs when appropriate.

Operator

At this point, I'll turn the presentation over to Tom Floyd, our Chief Lending Officer, to discuss our loan portfolio and loan performance.

Speaker 3

Thank you, Alex. As we recap the first quarter of 2026, I'm proud of our team's unwavering commitment to being a consistent and reliable financial partner. That dedication is reflected in our first quarter results, where we saw a continuation in loan growth in desirable categories. Perhaps most notably, we maintained our credit discipline, finishing the quarter with net charge-offs at $259,000. Over the next few minutes, I'm excited to delve into the details of our portfolio composition and trends that drove these results. Slide 16 highlights our portfolio diversification, where we continue to see growth in our owner-occupied commercial real estate concentration. This was a theme of our 2025 year, so we're glad to see this continue into 2026 as our energy remains focused on the strategic growth of owner-occupied commercial real estate, which we've grown by roughly $80 million over the last year.

Speaker 3

As of the end of the first quarter, our portfolio composition consists of 30% non-owner occupied commercial real estate, 25% owner-occupied commercial real estate, 16% in construction, 13% in multi-family, 11% in residential real estate, and 5% in commercial and industrial. Additionally, it's worth noting that nearly all of our construction portfolio has an interest reserve held at the bank. Slide 17 shows our trend in average new loan size remaining low as we have grown. This highlights that in the current environment, we're sticking to smaller sized opportunities within our market, which is full of diverse opportunities of all types and sizes. Moving to Slide 18, you will see the trend in our stress test estimates over the past five quarters. While the estimated worst-case stress loss has increased this quarter to $69.5 million, I want to draw your attention to the strength of our balance sheet.

Speaker 3

Even under these heightened hypothetical scenarios, our pre- and post-stress test capital ratios remain very strong, with a post-stress Common Equity Tier 1 ratio of 11%, well above the 7% threshold of well capitalized. It's important to contextualize this model against reality. While our stress testing remains conservative and rigorous, our actual net charge-offs have remained extremely low. This, coupled with our positive track record for navigating problem loans, gives us continued optimism about our future performance. To remind you of our rigorous methodology, we utilize loan-level testing for all construction and investor commercial real estate. For other categories, we apply the worst-ever historical loss rates to current balances, and we mark investments to market and bank-owned life insurance to the liquidation value. This comprehensive approach confirms that despite hypothetical pressures, our actual credit performance remains excellent.

Speaker 3

With low charge-offs, and our capital base remains solid, both pre- and post-stress test. In slide 19, you will see our classified loans at 3.09% of gross loans, non-accruals at 2.88%, and Other Real Estate Owned at 0.06%. While we monitor these closely, the most important takeaway is our history of execution. We've broken out our non-accrual loans there in the slide, and you can see that most of the non-accruals are attributable to only two relationships. Our low net charge-offs demonstrate that even when loans move to non-accrual, our team is highly effective at protecting principal. We remain diligent in our loan workout efforts and are confident in our ability to drive favorable outcomes for these specific credits. Slide 20 is a lens into our government contracting portfolio, and here I'm thrilled to announce the appointment of Morgan Higgins to our bank board.

Speaker 3

Morgan is formerly an executive director at JPMorgan Chase, where she successfully stood up a government contracting lending practice in Northern Virginia. Currently, Morgan is a partner at Blue Delta Capital Partners, a minority investor venture capital firm focused exclusively on the U.S. federal government market. We've already started experiencing the positive impact of her involvement, and I'm excited about the momentum we're building in this space. Currently, our portfolio has 30 asset-based lines of credit in place where all advances are supported by a borrowing base of billed receivables. As you can see, these 30 lines have balances of $8.8 million outstanding, with total commitments of $71.7 million, which equates to a 12% utilization rate. Over the average line's lifetime, this is relatively consistent. Our entire government contracting book only has $1.1 million in outstanding term debt.

Speaker 3

These loans are amortizing rapidly with an average remaining term of 21 months. The highlight here is the average deposit relationships attributable to this portfolio is $104 million. The portfolio's very strong deposit-to-credit relationship provides a significant funding advantage, with deposits averaging roughly 10 times the outstanding credit. In summary, we're pleased to deliver a quarter of consistent disciplined performance marked by continuing growth in owner-occupied real estate and a strategic board appointment. We have a well-maintained and diversified loan book actively managed across all categories. Crucially, a robust stress testing demonstrates that we remain strongly capitalized even in a worst-case scenario, and our classified and non-performing assets are at manageable levels, supported by a proven historical track record of timely, successful resolutions. We remain confident that our disciplined, relationship-focused approach positions us to deliver consistent performance and long-term value for our shareholders and the communities we serve.

Speaker 3

That wraps it up for our loan presentation. Back to you, Jeff.

Speaker 2

Thank you, Tom. As you heard, the lenders have been busy working on new relationships, especially in the owner-occupied space. The team is also working with field precision on each loan requiring resolution to minimize the possibility of a downside. We've also shared good news about the directional consistency of our net interest margin, expense control, and earnings. We'll address questions that were submitted through the portal after we hear from Christopher Marinac, Director of Research at Brean Capital. Chris, good afternoon. Chris, are you with us? We may be having a slight technical difficulty with this new solution. Bear with us, please, for one minute. Yes, we got you. Thank you, Chris.

Speaker 1

Great. Sorry, it's a couple of settings there.

Speaker 2

Yeah.

Speaker 1

I wanted to ask about customer behavior, just in terms of if folks are more cautious or more optimistic and just how that may or may not impact your new business pipeline the next few quarters?

Speaker 2

Yeah, that's a great question. I think I'll turn that over first to Tom Floyd on the loans side.

Speaker 3

Yeah. Great question. I think that generally speaking, in the real estate space, people are optimistic because they're able to take advantage of certain circumstances for expansion that they feel good about going forward. I think overall, our pipeline is still seeing lots of good opportunities, both that are related to some of the activity that comes along with some of the things that are happening at the national level in the government contracting space. In real estate, I think we're continuing to see good opportunities. Yeah, I think we're definitely seeing a good amount of opportunities in the pipeline.

Speaker 2

I think it's probably fair to say also that some of those opportunities might be coming at the risk of others who have struggled. From a pricing standpoint in the commercial real estate space, everybody loves a good deal, and so we're seeing a little bit of that as well. Mostly, everything stands on its own, and we haven't seen any real changes, certainly in the quality of the folks that we're looking at for new opportunities. On the deposit side, it seems like we've been making a bit more of an inroad. I don't know if that's a general change in where people are putting their money again. The business bankers have been keeping busy. Yeah, we're not seeing anything that would lead us to believe things are slowing down any more than they perhaps already had.

Speaker 1

Okay. Would the ability to get new accounts on the deposit side possibly accelerate if some of the external kind of distractions or uncertainty? I feel like that may benefit your marketplace more than others.

Speaker 2

Yeah, I think so. In the meantime, there's always that flight to quality, and FDIC-insured deposits are still seen as a very strong quality mark. Yeah, I think as the international arena settles down, if and when it settles down, yeah, we should see some more opportunities, I think, for deposit growth there, too.

Speaker 1

Okay. The Net Interest Margin still seems like it has some potential positive change as some non-accrual interest shifts. Can you just talk about the puts and takes on that and perhaps just any new visibility on margin outside of that recapture of problem loans?

Operator

Yeah. Great question. As I mentioned in the slide deck, we are seeing good opportunities both on the deposit side to continue lower funding costs. We have a set of time deposits that are repricing, and as the short end has come down, we're going to see funding relief there. On the loan side, again, as the yield curve steepens, we're going to be able to deploy those in a nice margin spread as our loans tend to fall around the five-year. I think another thing to point out, we recently announced the appointment of a new chief banking officer who's really experienced in our market, and he's really bringing a lot of great ideas to the table to increase not only the wallet share of our existing customers but really expand the customers that we're looking for. We're very excited about that.

Speaker 1

I guess one follow-up from me, just has to do with expenses. Do you have any efficiency goals? Not just next quarter, but just in the big picture of where you would like to see the organization. Is this quarter a step in that direction?

Operator

Yeah, absolutely. If you go back to 2023, one of our best years that we've ever had, we are seeing efficiency ratios in the low 50%. That's our target. That's where we're trying to get to. This quarter, we saw expense reduction, and so we saw increases in the efficiency going lower, and we're going to continue that momentum, and our target is to get back to those 2023 levels.

Speaker 2

Yeah. Which is somewhere between that 53%-55%. We think it's absolutely doable, but one of the difficulties right now, if we do put a loan on non-accrual, it generally means reversing 90 days of interest, which can be hurtful for the current quarter. Which we saw a little bit of this quarter. Once we get to the bottom of that, being able to go forward, I think we'll see some good improvements in our efficiency ratio, and that's really a great focus.

Speaker 1

Got you. Okay. Last question from me, this goes back to your new hire and the sort of expertise that she brings in the GovCon area. Will that part of your business be a lot different as we look a year or 18 months from now? Just curious, kind of big picture, how that will be impacted.

Speaker 2

We're definitely focused on that. I'll turn the question over to Tom in just a second, but yeah, from the board level, we think bringing somebody in with Morgan's background and experience is going to help us to really get a better line of sight into some of the government contractors. Blue Delta and what she does as a minority equity investor, everybody wants to have time with that group. There's other groups in that space as well. Our hope is to try to bring people together to host some events and things where she's speaking and really look at the opportunities. Having said that, the conversion rate on government contract borrowers is a little bit more of an effort. Tom, I'll turn it over to you.

Speaker 3

Sure. Yeah. Everyone in our market says that they want to be in the space, but I think I'm really excited about how we're approaching it because we're bringing someone on that is a known quantity in the space and from a number of different perspectives. Morgan can help us with opening doors to new customers and prospects and also just making sure that from an internal perspective, we're doing everything we can to be as competitive as possible in the marketplace. We are seeing some progress already with actual results. I think in terms of what we're going to look like in a few years, I do expect some meaningful growth out of where we stand currently. It's certainly a very strong funding source for us. I think it will remain to be a strong funding source because of the nature of the business.

Speaker 3

I do think that overall, we expect to see growth on the lending and deposit side.

Speaker 1

Great. Okay. That is very helpful. Thank you for all your responses and for taking my questions this morning. I appreciate it.

Speaker 2

Thank you. As always, Chris, it's great to hear from you. We do have just a couple of questions that came in through the chat. One is as a follow-on to Chris's question, is the bank actively working with the developments along the Route 50 corridor out to Middleburg, Tom?

Speaker 3

Our acquisition and development financing is mainly infill, which is closer in, inside the Beltway and just outside the Beltway. We do have some exposure to some people that have data center plans, but in those data center opportunities, a lot of them are covered land plays where there's an industrial component that still makes sense, and there's some industrial current uses that are happening where there's future potential for data center development. It's not fully dependent on that. Going out that way, there's certainly a lot of growth and development, but for us, we're mainly focused a little bit closer in to the Beltway.

Speaker 2

Great. Yeah, it's safer.

Speaker 3

Yeah.

Speaker 2

I think it's always been when we look back to the Great Recession in 2007, prices of land and property inside the beltway dropped 7%, while in Southern Virginia, you get further out, it was 31%. We've always focused trying to be close in as possible. The other question is a little bit harder to answer right now because we are in a blackout period, but does the bank intend to maintain an aggressive buyback so long as the stock price is below Tangible Book Value? I don't think that you'll see any change in trends of what you've seen in the past, but I don't know that we can really speak to that anymore. Alex?

Operator

Yeah. I'd just say we're very pleased with our current buyback plan, and the board is always looking at ways to expend capital in ways that make sense for shareholders. That won't change, and that will continue.

Speaker 2

I think that's a safe answer to that question. Looking at the website right now, there's no other questions in the queue. I want to thank everybody that participated in the webcast today. We're optimistic with what we're seeing, and like Alex kind of referenced a little bit earlier, 2023 was a banner year for us. Our objective is to get back to that level and then some, but we're working diligently to make that happen. If you find you have any questions once the call is done, please

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