MainStreet Bancshares Stock

Good afternoon, and thank you for joining our third quarter 2026 earnings webcast. My name is Jeff Dick. I'm 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 Brean Capital, will join us at the end of the call with his questions.

If you'd like, you can also submit written questions through the presentation using the chat function on the web portal. This function is private, so what you write won't be visible to anyone else. We will address your questions at the end of the presentation.

Before we begin, I'd like to remind everyone that today's presentation contains forward-looking statements. These statements are based on current management expectations and are subject to risks and uncertainties that could cause actual results to differ materially. For a detailed discussion of these risk factors, please refer to our SEC filings, including our most recent Form 10-K and 10-Q.

We also utilize non-GAAP financial measures to supplement our results, which are reconciled in the appendix of this deck. Our market spans key high-growth verticals, government contracting and defense, technology and innovation, world-class health care, tourism, higher education and Fortune 500 companies. This market diversity continues to generate high-quality lending and deposit opportunities. MainStreet operates in one of the most affluent economically resilient markets in the nation, the Washington, D.C. metropolitan area.

The regional backdrop remains exceptionally strong. The D.C. combined statistical area boasts top ranking median household income, including Loudoun County at #1 nationally and Fairfax County at #4. Recent data highlights on average home listing prices of over $830,000, median days on market at just 30 days and over 684,000 federal employees drive local purchasing power. Additionally, CBRE's REVIVE Index, which tracks economic vibrancy in Greater Washington, recently posted its highest 6-month rolling average since 2019.

CBRE in the Washington Business Journal launched the REVIVE Index in early 2024 to track changes to the region's economy following the COVID-19 pandemic. The index measures thousands of data points in dozens of industries and condenses those into major areas like labor, innovation, commercial real estate, residential real estate, mobility and visitation, the federal government and investor sentiment.

Ian Anderson is CBRE's Senior Director of Research and Analysis. He indicated that the broader trends are showing at least stabilization, if not growth. Of note, last month, the index showed federal employment growth, a positive shift since the 2025 workforce reductions. Our long-term growth has been anchored by disciplined strategic capital raising and an efficient footprint.

Operating from 7 branch locations across Northern Virginia and Washington, D.C., our branch-light model allows us to support $2.24 billion in total assets with 164 full-time employees, achieving an exceptional asset per employee metric of $13.6 million. MNSP common stock closed the quarter at $24.74, representing 94% of our $26.36 tangible book value per share.

As a component of the Russell 2000 Index, our focus remains squarely on building long-term compounding value for our shareholders through disciplined capital allocation. During today's presentation, you'll once again see directional consistency on our net interest margin, expense control and core earnings.

Before we dive into our financial performance results, I want to address our credit posture directly. In the shifting macroeconomic environment, proactive asset resolution is essential to maintaining balance sheet integrity. During the third quarter, we took deliberate credit risk management steps, recognizing a $1.9 million credit provision, which includes a $1.4 million charge-off tied to the sale of real property securing a $4.5 million nonperforming loan. This provision had an after-tax impact of negative $0.21 per share on quarterly earnings.

Near the end of the quarter, we downgraded a significant $28.8 million loan. Last week, the borrower revealed additional liquidity concerns and we moved the loan to nonperforming status. Although small in comparison, our active remediation process continues to bear fruit, demonstrated by the full repayment of a $475,000 nonperforming credit through collateral liquidation, where we recaptured 100% of principal, accrued interest and legal costs.

Later in the presentation, Tom Floyd will talk about the team's efforts to manage and reduce the level of classified loans as well as to resolve nonperforming assets. Now I'll turn the call over to Alex Vari to review our detailed financial results and market dynamics. Alex?

Thank you, Jeff. I want to take a minute just to expand a little bit on that last slide. We're obviously working through a handful of challenged credits, but it's encouraging when you're able to achieve a successful outcome like the loan you mentioned, where we were able to recover full principal workout expenses and all the interest. Workouts never occur as quickly as we'd like them to, but when the methodical process works and we can preserve capital, it's a testament to the team.

Of course, not every single workout is going to have that outcome, and we have to make tough decisions on the best path forward. That sometimes means adding to a provision expense, which unfortunately can overshadow an otherwise strong core performance. That's precisely what happened this last quarter. Without the targeted credit provision we took during the quarter, the bank's core returns yielded another quarter of improved performance with a pre-provision return on average assets of 91 basis points, a return on tangible common equity of 9.61% and earnings per share increased to $0.64 per share.

Slide 9 shows the quarter's reported numbers, inclusive of the $1.9 million credit provision indicated on the last slide. Our net interest margin improved quarter-over-quarter to 3.55% despite the increased funding pressure in our market. Not shown on this slide, but I think worth mentioning, we notched our fourth straight quarter of net interest income growth, which increased 3% from the previous quarter and is up 10% from the same quarter last year.

On Slide 10, you will see a diligent liquidity strategy that incorporates a secured line availability that has continually grown quarter-over-quarter. We manage our loan-to-deposit ratio to maximize our net interest income and have curated the security of over $816 million in available funding sources. Our available liquidity facilities now cover over 42% of our entire deposit portfolio.

On Slide 11, you will see the balance sheet is well positioned over the next 12 months. This provides us with the ability to maintain margin stability regardless of the shifting rate environment. You can see our models are pricing an additional 25 basis point hike forthcoming.

Moving to Slide 12, you will see our net interest margin has expanded again to 3.55%. The margin has continued to improve over the last year in the face of increased funding competition, which is both a credit to our floating rate loan book and continued efforts of our loan and business banking teams to grow core relationships. In a couple of slides, I'll get into more specifics regarding the loan repricing opportunities we will see quarter-over-quarter and their positive impact on our margin going forward. Looking ahead, we expect the net interest margin to hold steady as our loan book sees an immediate impact on the rate hike from mid-September. Deposit pressure is present, but will lag as our market digests the rate move from last month.

Slide 13 gives you a different look at our net interest margin. As expected, our cost of deposits hit the trough during the third quarter and will start to increase. Perhaps more importantly, though, you are also seeing an increase in loan yields that are and will outpace the increase in our cost of funds. As I mentioned on the last slide, we will see the full impact of the September rate hike in the fourth quarter and moving forward.

On Slide 14, we dive deeper into what the loan repricing opportunities are. Building on my comments from a previous slide, you will see that we have $408 million loans indexed to prime, which increased 25 basis points in mid-September, and we will feel the full realized impact starting in the fourth quarter.

We also have an additional $76 million in loans with a healthy spread of 2% to 3% to the 5-year treasury that will reprice over the next 3 quarters. With the 5-year trading near 4.78% today, these loans will be nicely accretive. Overall, our loan portfolio composition is well balanced between floating and fixed rate assets with 62% of the book tied to floating rates or repricing within the next 2 quarters and 38% of the loan portfolio at fixed rates.

Over on Slide 15, you see the deposit stack is balanced between floating and fixed rate deposits. As a business bank, a large portion of our noninterest-bearing deposits are in the form of operating accounts. We are extremely focused on growing market share in this space, but not unlike any business, deposit cash flows do vary at any given time. However, it's worth noting that our average balances of noninterest-bearing deposits have increased over 8% year-over-year.

On Slide 16, I want to point out that core deposits represent 82% of the entire deposit portfolio as a result of our strong relationship banking strategy. I mentioned on an earlier slide that funding cost increases will lag our floating rate assets. You can see here that the weighted average duration on time deposits supports that lag in funding cost.

Slide 17 lays out our path for the remainder of the year, where our primary focus is capitalizing on our earning asset momentum and tight expense control. We are estimating to end the year at 5% loan growth for 2026. As we continue to drive top line revenue, we expect our operating costs to remain at current levels through the last quarter.

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

Thank you, Alex. Over the next few minutes, I will provide an update about our portfolio composition, our pre- and post stress test capital ratios and our classified loan levels.

Moving to Slide 18. Let's look at our portfolio structure, which remains well diversified. We grew total loans by $4 million over the quarter and remained at 5% year-to-date growth, driven entirely by our organic relationship-first approach to banking. It's worth noting that our commercial real estate concentration is back under our Board set limit of 375% as our focus remains firmly set on growing C&I and owner-occupied commercial real estate banking relationships. Additionally, we maintain excellent structural protections. 85% of our construction loans have a dedicated interest reserve deposit held at the bank.

The next slide illustrates our construction loan dispersion. As you can see, 91% of our construction portfolio is within a 25-mile radius of our branch network. This dense regional concentration gives us a distinct advantage. Our team has firsthand knowledge of every submarket we lend in. We routinely inspect development sites, meet with project sponsors in person and assess asset progression to actively manage risk within the portfolio.

Slide 20 highlights our capital position. We routinely stress test our balance sheet against severe economic downturn scenarios. Our pre-stress common equity Tier 1 risk-based capital ratio provides a massive cushion. Even after absorbing the losses modeled in severe hypothetical scenarios, our post-stress capital ratio consistently finishes well above the 7% regulatory threshold of well capitalized.

On Slide 21, we highlight our active workout efforts on our classified and nonaccrual loans. We currently manage $46.4 million in classified performing loans, $92 million in classified nonaccruals and $1.8 million in OREO assets. A quick rundown of the nonperforming assets. Relationship 1 is a hospitality asset that we downgraded to nonperforming after quarter end. We're actively doing in-depth diligence to determine the best course of action.

Relationship 2 consists of 2 properties that are in bankruptcy. We have a confirmed plan with the court that will result in either full principal payoff or a transition of the real estate assets into our OREO this quarter.

Relationship 3 is a loan that is in the process of liquidation. We're pursuing collateral liquidation and guarantor recourse.

Relationship 4 is a 9-unit condo sellout in Washington, D.C. The first condo is active and on the market, and the current pro forma does not indicate any exposure.

Relationship 5 was resolved and sold on October 7, as mentioned earlier in the presentation.

The remaining 7 relationships are being actively worked to get to the best possible outcome for the bank. The takeaway here is we do not sit on these relationships. We manage them aggressively with a sharp focus on maximizing recovery. And as Alex mentioned earlier, we're happy to have another story to report where we ended an asset resolution with the recovery of 100% of principal legal fees and interest.

The D.C. market is deep and diverse, but has not been without its challenges. The relationships listed on the previous slide largely fall into these 2 categories. Multifamily landlords have lived through a challenging stretch due to the balance of landlord tenant rights in the district that were shifted during the COVID pandemic. Compounding these issues were cuts to temporary housing subsidies through the rapid rehousing and emergency rental assistance programs.

Construction projects were impacted by challenges with the rising interest rate environment and inflationary period. In both cases, these events put a strain on borrower liquidity. Our borrowers remain committed to getting to the best possible outcomes given the circumstances, and we're focused on achieving the same result.

In summary, we're pleased to deliver a quarter of consistent disciplined performance marked by another quarter of loan growth. Crucially, our robust stress testing demonstrates we remain strongly capitalized even in a worst-case scenario, and our classified and nonperforming assets are at manageable levels.

We maintain our vigorous focus on timely successful resolutions. We're confident that our disciplined relationship-focused approach positions us to deliver consistent performance and long-term value for the shareholders and the communities we serve.

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

Thank you, Tom. As you heard, the lenders have been busy working on new relationships, especially in the owner-occupied and C&I space. The team is also working diligently to resolve nonperforming and classified loans. We've shared good news about the directional consistency of our net interest margin, expense control and earnings.

To wrap up on Slides 21 and 22, MainStreet's underlying operating engine is performing exceptionally well. Our core earnings power is strong, driven by expanding margins, disciplined deposit costs and tight noninterest expense control. While credit resolution in a transitioning commercial real estate environment requires patience and decisive action, our capital position, liquidity buffers and deep roots in the vibrant Washington, D.C. market ensure we are managing through this cycle from a position of strength.

We'll address questions that were submitted through the portal after we hear from Chris Marinac, Director of Research at Brean Capital. Chris, good afternoon.

Jeff, can you hear me okay?

I can hear you good. Thank you.

All right. Great. Thanks for hosting the call today. So I wanted to dig in a little bit more to just the credit quality and I appreciate your overview as well as Tom's. What else do you see in the pipeline of potential issues? And I guess I'm asking from a standpoint of higher interest rates and any stress that borrowers may be feeling that you didn't see at 9/30.

So I'll start with this one, and then I'll turn it over to Tom. But where we're at in the interest rate cycle now compared to since the 2023 time frame is profoundly different, right? Because interest rates went up 5.25%. And our stress testing, probably not unlike everybody else's stress testing sort of looks at what happens if rates go up 3%. So we still have a lot of those legacy loans that we're dealing with. So the question is still relevant. But now we're looking at -- we just had 0.25% in late September.

There's maybe one more rate rise before year-end, I'm not sure. But -- so the effect is not as profound as it was. And as our slide that Tom talked about, it does show -- or I guess, Alex actually talked about, it shows that $75 million of the 5-year structure is going to be repricing. And Tom, I know we talked about that before. So I'll get your thoughts on it. And Alex, if you have anything you wanted to add.

Sure, sure. So on the $75 million that you referenced, we have the benefit of being able to recast amortization if it's needed. In a lot of cases, we don't anticipate that it will. But when we're looking to get between 2%, 3% over the treasury on a reprice, if there is stress, we can get slightly lower than $300 million if there's an absolute need. But a lot of times with the simple fact that these have paid down since origination. If you just go back to a 25-year AM, typically, there's room for coverage where you're not creating new stress.

Alex, anything you want to add on that?

Yes. No, I would probably just say the $408 million that are also going to see a rate increase are largely construction-related loans, and we have interest reserve balances on those that are there to accommodate for rate changes. So that's part of how we underwrite those types of loans to build in for those variances. So bottom line is we continue to work with our borrowers to try to stay in front of it. But I don't see the forthcoming rate changes to be as problematic as the ones we experienced in '23 and '24.

Got it. Great. And then I guess just a quick follow-up. Do you have to do any additional reserve build or changes to the reserve, whether it's on the balance sheet portion or the unfunded portion from here just to accommodate future risk?

Yes, happy to take that. So as you'll see that the allowance for credit losses to loans did go up a little bit this quarter. And there's a lot of dynamics in there, largely due to -- we had the charge-off where we took actions there. And what that inherently will do is raise the provision in the pool for loans to accommodate for unidentified stress in the portfolio. And so you're seeing the natural increase in the allowance just through the experiences and historical things that we're seeing.

But management is looking at that every quarter and assessing the different economic impacts of our local area, the larger macro area and trying to identify where is there stress potentially in a portfolio that we're not seeing and not already being accounted for.

And then, of course, you're seeing on the unfunded side, that's largely impacted by the utilization rates of the lines that are being used. And so you're seeing a natural inflow and outflow of that as well.

Okay. Great. And then a question on deposits. Can you talk a little bit about what's potential on deposits as rates are higher? Does that give you more latitude with new customers? And just curious, I know competition is always very fierce, but do you what do you sense in terms of deposit flows the next year?

Yes, yes. And you're spot on. Funding competition in our market is just always naturally competitive. And what we're seeing here, interestingly enough, it was -- we saw a lot of deposit questions and customers asking questions ahead of what a potential rate move could be. And it was almost like you had a little bit of deposit froth with the uncertainty what was going to happen. After the Fed decided to move rates, we actually saw a little bit of a pullback in rates as the market digested what happened and expectations about the future change.

But we're definitely in a competitive market. We have the ability to be a little bit choosy with how we target any increases. We're being very diligent about where and how we do those. And we will have the benefit of being able to lag a lot of our deposits, particularly on the time side. We'll be able to ladder those in and get the benefit of the rate change with our floating rate book and our deposits will certainly lag that. So we'll see some margin stability just from the natural dynamics there.

Great. And last question just goes back to your share repurchase plans and kind of where on the priority list is that going to be in the next 12 months?

So we had some good activity that any time we repurchase shares, the one thing we have to be conscientious of is our concentration of commercial real estate. And so we've got that back under the 375% as the Board's limit in that area. And we're, as Tom said, continuing to focus on C&I or owner-occupied lending. So as we get comfortable with where that number is now and as we see any opportunities, we'll be looking at the potential, but we have some room left in our current buyback.

And Jeff, is it fair to say that capital could be growing as fast, if not faster than the balance sheet at this point?

I'm not sure of the context. I think our earnings retention has always done a good job of augmenting our capital needs. But yes, it's -- there's still good loan opportunities out there. I think the biggest challenge these days is getting reasonably cost deposits to grow with as well. So that is going to be a challenge for us. But I know the new Head of Business Banking has -- I think we brought on 3 new business bankers, and we're looking at adding to that team as we can. And hopefully, that continues to bring opportunities for new low-cost relationships overall.

Well I'll just -- I'll add on there. It's evident, and I made the comment earlier in the slide deck, just our average balance of noninterest-bearing deposits are up year-over-year, and you're seeing that due to the team's efforts there and targeting new customers and going after those good low-cost relationships. So we're seeing that play out in the mechanics.

Thank you, Chris, for your questions. We always appreciate your perspective. And we've got just a few questions in the portal. The first one is asking how much of the $1.8 million net charge-off was against the big loan that went bad and...

Yes. The $1.8 million charge-off there that's being mentioned, it was a $1.4 million charge-off on the one particular loan. We had a couple of other OREO properties that were disposed during the quarter that resulted in the roughly $300,000 to $400,000 of the additional charge-offs there. As we mentioned on the call, the larger loan was downgrades and nonaccrual after quarter end. And so you're not seeing that reflected there as we're still digesting that.

And so yes, we did retroactively add that to the nonperforming assets as of the quarter end, even though really the decision was made late last week. Go ahead.

Yes. And just to add into this question, there was just a question about what the interest reversals were, the impact for this quarter for some of the loans that did go to nonperforming. And we actually -- we did have a couple of loans that did go to nonperforming where we did reverse the interest.

But if you recall back earlier in the presentation where we had the full recovery of the loan and we got all the interest back, the interest recovered on that loan was actually more than the interest that we had to reverse with some of the other nonperforming. And so we actually saw a positive in that perspective throughout the quarter.

And ironically, the loan that we just placed on nonaccrual, actually, they have made their most recent September payment. So that's why -- and some of the things that we're dealing with on this one are really in the moment. We have some questions on -- we'll stay with the -- what our management's return on average assets and return on average total common equity goals as the most recent ratios are low.

Yes. No, that's a great question. When we're thinking about our performance goals in these particular metrics, we often talk about 2023 being the best year that the banks have and what were our metrics there and how do we get back to that. So if you -- that's something that we're very focused on. And if you're looking back at what those are, that really translates to a return on average tangible common equity of 14-plus percent and return on average assets of over 1%. So that's what we're focused on where we want to be.

Yes. Okay. And what is management's assessment of the range of potential losses on the $28.8 million nonperforming loan. And again, I'll kind of start on that one. And as we indicated, it literally is happening kind of almost in real time here. And so we have ordered updated appraisals. We've ordered brokers estimates of value. We're working sort of every angle on this, but it's very fluid right now. And so unfortunately, this is all like it's real time. And I don't know if anybody else has anything to add to it, but we're sorting through this one.

That's it. I mean new information was learned by management on Friday, the 23rd. We took action at that time, and we're going to continue to do diligence actively, and we'll know more in the coming days and weeks.

And Tom, the other question here is in the last question right now is how significant are the delinquent loans in the says 50- to 89-day delinquency bucket.

Sure, yes. So there's a number of those that have been resolved since the quarter end where there's some short-term issues that we were able to get resolved. And we are constantly updating our watch list and our substandard loans.

We talk about them and committee once every 2 weeks. And we do that until they're resolved. And with that list, there was some noise there at the end of the quarter, but we continue to work through that diligently. And if we identify an issue as we're going through this, we escalate it and take the appropriate steps.

So the significance, I mean, from a relative basis, some of them have been resolved percentage-wise, is there anything that you can add to that or not?

So we -- we're looking at the 30 to 90. The question is specific to 50 to 90. I mean I don't want to misspeak, but I think roughly 1/3 since quarter end, and then we're continuing to work the others rigorously so.

And yes, some of these are just perennial slow pays. But generally speaking, most of them that we were talking about earlier are -- have some good directional consistency. So it's -- we don't think -- we don't see it as highly significant at this point in time pointing to future issues or problems.

That's right.

All right. We have one that just came in. What do you expect nonperforming and classified loans to be next quarter, resolved dropping off and new being added. And so it's interesting that I can take a little bit of that because we talk about this so much in committee, and that is the $20 million relationship is either paid off or turned over to us in this quarter, later in the quarter. And if it's turned over to us, it may not get immediately resolved, but at least we'll be through the court issues at that point in time, and we'll be able to take appropriate actions in market. Tom, anything on that one?

No, exactly. It gives us the ability to transact this quarter. So whether that happens at the end of this quarter or in the beginning of the next, that's the likely time line to transact on that one. There's always a chance it will get paid in full. But again, if not, it puts us in a position that we can transact and get that one disposed of.

The $14.5 million is something similar kind of planned. There's -- in January, it's not as far through the courts, but there's going to be they'll either resolve it or sort of start the process of handing over the keys in January as well.

Correct. In the beginning of January. And then -- so that one does have a plan with the borrower to move it along. And so that one is more of a first quarter resolution on that. And then kind of just going down the list there, the $6 million, I don't believe that will be fully resolved this quarter just because if you look at sales absorption in the condo project right now, but it should start to come down each quarter as you get sales. It is only 9 units.

We believe they're priced well, and those will sell and go from there. And the other ones are mix. I mean the $19 million, we have some that will come out, we believe, this quarter, some of the smaller ones, it's a little bit more of a granular pool, and we continue to try to solve those.

Now there's always the potential for new information to come up as there is in any situation. So we continue to closely monitor and take the appropriate action.

Yes. So the key thing right now is that there's, what is it, 19 classified relationships that are, as you said, being looked at by committee every 2 weeks and certainly addressed by the loan officer, yourself, the Chief Credit Officer on an ongoing basis. And so they're getting good attention. And so those that we can act upon, we will continue to do that.

As far as new additions to it, we're not seeing anything at this point in time, but it's -- that's not an absolute task as we learned from our most recent last few weeks having this one pop up when we thought it was actually starting to show some signs of improvement that can happen. It doesn't typically happen, but it can. And so that's one of the things that we're dealing with right now, but we're encouraged by the actions and activities that we're seeing progressing, getting some of these resolved. And you can be rest assured that we're diligently sort of on it.

The team is focused. We don't have a workout specialist who's rewarded for getting rid of things at any price. We're really trying to take a precision kind of approach on this to get what's in the best interest of the company. Any other thoughts on that?

I was just going to say, as I mentioned earlier, workouts never go as quickly as you'd like them to and the wheels of the court system grind slowly. And it's nice we have a few of those that will be out of that system, and we can transact on, like you said, it would be good to make some progress there.

That's right.

All right. Well, thank you, everybody, for joining us today. And we look forward to working very hard and getting improvements in the portfolio, and we'll be talking with you again at the end of the next quarter, if not before. Thank you again. I appreciate all of your investment.

Good afternoon, and thank you for joining our second quarter 2026 earnings webcast. My name is Jeff Dick. I'm 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 Brean Capital will join us at the end of the call today with his questions.

[Operator Instructions] This function is private, so what you write won't be visible to anyone else. We will address your questions at the end of the presentation. 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. The Department of Government Efficiency recently wound down and left town. The D.C. market is sometimes perceived as not a good market, often in conjunction with concerns about politics.

Yes, politics affects our marketplace, but in the last 22 years, the overall effect has been nominal in the community banking space. Since we opened our doors in 2004, we've experienced 5 presidential administrations, 4 D.C. mayors, 7 Virginia governors and 4 Maryland governors. We've also experienced economic and political pressures over that same period, including the Great Recession, where real estate prices actually held up strong inside the beltway.

The budget control and sequestration period where community banks felt some secondary impact from hits taken by reduced government and corporate spending. During this period, specifically, we did have a couple of C&I relationships collapse, the COVID-19 and remote work period where community banks felt some impact from the hospitality crisis, but community banks didn't finance the big office buildings that felt the brunt of the shifting workplace culture.

Washington, D.C. also didn't experience the great urban shift felt by so many of the large cities in the United States. But during this period, the liquidity for some of our borrowers was impacted by higher interest rates on projects that became protracted due to supply shortages, cost increases, work slowdowns and permitting delays. A few of those borrowers are having difficulty right now, and we are working with them. The overarching point for us is that we are in a solid, resilient market.

By the numbers, the median household income is $135,089. The average home listing price is $831,000 and the median days on market is 30 days, still a seller's market. Anecdotally, I recently sold my house in 1 day with multiple offers. Federal Reserve economic data from December 2025 indicates that we have 684,000 government employees in the D.C. metropolitan area. Our market remains vibrant, and we continue to see good opportunities. We remain 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 2 years, we've been hovering around that $2.2 billion total asset mark. We 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 bank in the Washington, D.C. market, our ongoing funding costs may very well remain a little higher than our peer group across the country.

We opened our doors in May of 2004 as a Virginia-chartered community bank. We've been rooted in the Washington, D.C. metropolitan community now for over 22 years. Slide 7 shows that MNSB 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 94% of tangible book value, which is now at $26.30 per share.

During today's presentation, you'll once again see directional consistency on our net interest margin, expense control and earnings. Asset quality remains good, and we are well capitalized. You will also see that we are working toward resolution for 8 performing relationships and 13 nonperforming relationships. In light of that, we've provided some historical references to show that our loss experience over time has been nominal as we work with our borrowers. Our goal is to continue that successful track record.

At this point, I will turn the presentation over to our bank CFO, Alex Vari.

Thank you, Jeff. Slide 8 highlights our solid performance during the quarter. We increased earnings per share to $0.58 by growing net interest income over 4% during the quarter. It's encouraging to see our focus on earnings growth producing results. Our net interest margin improved to 3.53%, while our return on average assets and return on tangible common equity improved to 0.85% and 8.88%, respectively. With our third straight quarter of net interest income expansion and tight expense control, our efforts to improve core earnings quarter-over-quarter continue to bear fruit. We remain focused on our process and progress to drive higher returns for our shareholders.

On Slide 9, you will see a diligent liquidity strategy that incorporates a secured line availability that has grown quarter-over-quarter. We continually manage our loan-to-deposit ratio to maximize our net interest income and have curated the security of over $810 million in available funding sources. Our available liquidity facilities cover 42% of our entire deposit portfolio, giving us flexibility to support our growth initiatives.

On Slide 10, you will see we have effectively neutralized the interest rate risk on the balance sheet. This provides us with the ability to maintain margin stability regardless of the shifting rate environment. Our loan portfolio composition is well balanced between fixed and floating rate assets with 42% of the loan book at fixed rates, while 58% are floating rates or will reprice after 2 quarters.

Moving to Slide 11, you will see our net interest margin has expanded again with our core and reported net interest margins converging at 3.53%. Just as a reminder, we have presented the core and reported net interest margins to exclude nonrecurring transactions and give you a view of how the bank has been performing overall. The portfolio has been resilient over the last year, which is consistent with the bank's history.

On Slide 12, we outlined the bank's NIM over the last 22 years, demonstrating that the bank primarily operates a floating rate loan portfolio that yields a strong net interest margin throughout cycles. With one brief exception in 2009, the bank has consistently returned a net interest margin above 3%.

Turning to Slide 13, you will see our second quarter net interest margin expanded from both increased yields on assets and lower cost of funds. To no one's surprise, market dynamics are now shifting, and we do expect additional deposit pressure in our highly competitive market. Looking at where our NIM is headed over the rest of the year, we are expecting funding cost pressures to increase slightly. We operate a short duration loan portfolio with funding duration that matches.

With our projected funding offsetting loan reprices and a steady increase in average noninterest-bearing balances, we anticipate single-digit movement in the net interest margin through the rest of the year.

Moving to Slide 14, which builds directly on the previous slide, you can see how our consistent risk premium translates directly into higher asset yields. This disciplined approach to credit pricing actively safeguards and enhances our net interest margin even in volatile yield curve environments. Our customers aren't just buying a transaction. They are paying for the quality and premium execution our team delivers.

And on Slide 15, you can see that while we priced our assets to capture that credit risk premium, the actual loss experience over our lifetime is incredibly small compared to the risk-adjusted returns we generate. As demonstrated across multiple major economic disruptions, including the Great Recession, sequestration, the COVID shock and the recent rate hike cycles, our credit quality has remained exceptionally resilient. While we aren't immune from credit fluctuation cycles, our lifetime net charge-offs over 2 decades stand at just $12.6 million. This track record proves that our pricing model is highly efficient. We consistently capture the premium while our structural credit discipline limits actual credit losses incurred.

On Slide 16, you'll see a deposit mix that is a direct reflection of our business customer-focused strategy. Quarter-over-quarter, we have continued to grow deposits while lowering the cost of those deposits. Given the intensifying deposit pricing pressure in our market, we are challenging our teams to pursue relationships with high-value deposits and to optimize relationship profitability.

On Slide 17, I want to touch on our success of using wholesale deposits to supplement strong loan growth. We continue to see good loan opportunities as evidenced by our loan growth of over 4% in the second quarter alone. As we've done for many years, we fund strong loan growth with wholesale deposits and backfill those deposits with lower cost core funding. This strategy has been a successful way to grow our portfolio and maintain attractive margin. If you recall, our consistent net interest margin over the years from the previous slide.

Slide 18 lays out our path for the remainder of the year, where our primary focus is capitalizing on our earning asset momentum. We are targeting 5% to 7% loan growth for the year. As we continue to drive top line revenue, we expect our operating costs to remain at current levels through 2026.

Lastly, on Slide 19, we grew the book value of our shares by 9% year-over-year, primarily through the earnings power of the franchise. We have supplemented that growth by executing strategic share buybacks over that same time period. In the last quarter alone, we repurchased 207,000 shares at a price accretive to our shareholders. While we are focused on driving sustainable core earnings, the Board will consider future buyback opportunities when appropriate.

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. Over the next few minutes, I'm excited to guide you through our portfolio composition and highlight our key growth areas. I will also provide a closer look at our underlying loan characteristics and discuss our robust capital position. Finally, I'll give an overview of our classified and nonaccrual levels.

Moving to Slide 20. Let's look at our portfolio structure, which remains well diversified. Year-to-date, we have grown the overall portfolio by 5%, a result driven entirely by organic relationship-first approach to banking. A major highlight of this growth is our owner-occupied real estate book, which expanded by $97 million over the last year as we continue to partner with strong local operating businesses. Additionally, we maintain excellent structural protections. 88% of our construction loans have a dedicated interest reserve held at the bank.

Slide 21 provides a closer look at our government contracting portfolio, a sector where we are building traction. I'm pleased to report that our business development efforts are yielding strong results. This quarter, we onboarded several high-quality relationships, driving a substantial increase in outstanding balances quarter-on-quarter. Beyond asset growth, this portfolio continues to serve as an exceptional source of stable core deposits. We are also excited to welcome Oliver James, a key new addition to our team, who will help us capitalize on these opportunities and accelerate our positive momentum in the space.

Moving to Slide 22, you will see that as our legal lending limit has grown, our average new loan size has remained relatively small. This highlights the strength of our market and that we are able to hit healthy growth goals while maintaining consistently low average loan sizes. By keeping our average loan size small and granular, we preserve pricing power and spread credit risk broadly across many different borrowers.

Slide 23 illustrates the geographical dispersion of our construction portfolio. As you can see, the vast majority of our construction projects are within a 25-mile radius of our branch network. This regional concentration gives us a distinct advantage. Our team has firsthand knowledge of every submarket we lend in. We routinely inspect development sites, meet with project sponsors in person and assess asset progression to actively manage risk within the portfolio.

Slide 24 highlights our capital resilience. We routinely stress test our balance sheet against severe economic downturn scenarios. Our pre-stress common equity Tier 1 risk-based capital ratio provides a massive cushion. Even after absorbing the losses modeled in the severe hypothetical scenarios, our post-stress capital ratio consistently finishes well above the 7% regulatory threshold of well capitalized.

On Slide 25, we highlight our active workout efforts in our classified and nonaccrual loans. We currently manage $54.4 million in classified performing loans, $61.3 million in classified nonaccruals and $900,000 in other real estate owned assets. The takeaway here is we do not sit on these relationships. We manage them aggressively with a sharp focus on maximizing recovery, consistent with the historical performance shown on Slide 15.

In summary, we're pleased to deliver a quarter of consistent disciplined performance marked by continuing growth in owner-occupied real estate and building momentum in our government contracting niche. Crucially, our robust stress testing demonstrates we remain strongly capitalized even in a worst-case scenario, and our classified and nonperforming assets are at manageable levels. We maintain our vigorous focus on timely, successful resolutions. We're 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.

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

Thank you, Tom. As you heard, the lenders have been busy working on new relationships, especially in the owner-occupied and government contracting space. The team is also working diligently to resolve nonperforming and classified loans. We've 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 Chris Marinac, Director of Research at Brean Capital. Chris, good afternoon. Chris, are you there with us? Chris...

I apologize, we may be having some technical difficulties getting connected with Chris here this afternoon. While we're waiting, there is one question that was asked, what is the average price of the repurchased shares this quarter?

We don't have that number in front of us, but we'll get back to you with this -- with that number, but they very much were accretive to book in all cases. Okay. Chris, are you there now?

Can you hear me?

There we are. Sorry about that.

All right. Well, thank you for having me. I appreciate it. And so I just have a few questions. Can you just talk further extending what Alex was talking about in terms of the deposit opportunity that you see? I know that pricing and pressures are there as he had mentioned. I'm just kind of curious on the kind of more macro deposit opportunity that you still see in your footprint.

So one of the things we were talking about quite a bit over the last couple of months is we are a branch-light franchise. And our -- the business banking team that we've had with us has been doing a great job kind of keeping us where we are with just a little bit of growth. And so we are in the process right now of bringing on a few more business bankers, we're going to -- we will continue to try to do that because we still think that there's some great opportunities to bringing on the small business customers that has a nice deep relationship where you get their operating accounts.

And so the collective cost of funds is generally better than if you're just having to pay wholesale funds at the margin. So that's the best opportunity that we have. And so we've been successful in the past to bring on experienced business bankers that have good relationships, and that's what we're pursuing again.

Great. That's helpful. And then just a quick kind of credit question. Obviously, had good clean credit loss issue or stats this quarter. Just curious if we should expect to see more of the same in the near term or if we should budget just a little bit of loan charge-offs in general?

Chris, we don't have any losses identified at this point. Our 2 largest nonperformers are in the court system at this time, and they're working themselves through. I can assure you that we're doing everything we can to maximize collection, and we've got a great history of doing that. But those things are ongoing, and we continue to stay diligent in our focus to bring those to full resolution.

Yes. And I think beyond that, we are -- we don't have any plans to discount anything and send it out. But I suspect in order to get through the resolution of the book that we have right now that we will see a little bit of loss, what that is, I don't know. But I don't think it's going to be material for the entire outstandings that we have. But yes, it's hard to say at this point.

So I don't think you'd be wrong dialing in a little bit, but I don't know what that size is. I mean, every day, we're trying to get close to what those numbers might be.

Okay. Not a problem. And then I had a buyback question. If I'm counting correctly, over the last, I think, 6 quarters, you've been able to take about 10% of the share count down. I presume the pace may be a little slower in the next 6 quarters. But just in general, your appetite is still to repurchase shares and you still have capacity to do so. I just want to confirm that.

Yes. I mean the capacity right now is throttled a little bit by the commercial real estate concentration. And so as we are able to continue to retain earnings and grow, we are trying to do less in the investor CRE space and more into the owner-occupied and the C&I space. And so as we're able to do that, Alex, I think the focus is going to be on buying back shares as long as there's -- it's prudent to do so.

Yes, that's right. We're just -- we're making sure we're keeping that balance, but we -- the buyback plan is active. We do have capacity. So we're always looking at that.

Got it. Okay. And then last question for me is just the tax rate. Should we be presuming the tax rate to stays kind of where it has been this last few quarters or anything different?

Yes. Yes. I would keep it constant here for the next couple of quarters, and then we can reassess that. It's a little bit elevated at the moment. Just we have a little bit of extra accrual in there. But yes, you can keep that consistent for the next couple of quarters.

I look forward to the next quarter.

Yes. Thank you very much, Chris. And it's nice having an analyst in the room because the average buyback was $24.09. So we have that one answered. The stress test analysis, we're doing it. We use an internal model, and it's one that I was really focused on building following the regulatory supervision. But from a conservative standpoint, one of the things I did when I was building, you make assumptions before you have the real data coming in and especially, we had 0 classified for the longest period of time.

And ironically, this coming from a former regulator, hard to imagine, but the assumptions I made with regard to when assets get classified is, sort of, put the double jeopardy. That's one of the reasons you see a bit of a significant increase in the worst-case stress test. We've decided to leave that calculation alone until we get through this cycle, we'll be making some adjustments to it. I didn't want to make adjustments to it while we're sort of 2/3 of the way, 3/4 of the way through from a consistency standpoint. So you can be rest assured that, that is about as significant of a number. And based upon our historical performance, you shouldn't ever see the likes of that actually happening.

The next question is regarding the timing of the existing nonperforming assets?

And to that question, it's -- as I mentioned, the 2 largest are in the court system, which unfortunately is moving a little slow, but we don't just rest on that. We look for opportunities to bring things to closure throughout those processes. And those things are, frankly, to predict right on the money, but it doesn't mean we don't stop trying to do that. So I think we're doing everything we can to get those down as quickly and as responsibly as possible to make sure we maximize recovery.

Yes. Again, it's at the hands of a judge that slows things down. There's also a question about the expected margin change in the second half of the year, assuming stable rates. Alex, do you want to take that?

Yes. Yes. No, great question. And largely, we expect the margin to hold constant with where you're seeing it today. We do have deposits that are going to reprice. And as I mentioned on the call that we are expecting some deposit pressures just given kind of what's happening in the environment and the market that we're in.

But we also have a healthy amount of loans that are repricing at attractive rates. So you're going to have those offset the cost of deposits that are repricing. So you might see a couple of basis points shift here and there depending on the unforeseen things that happen. But in large part, we expect it to hold pretty constant.

Yes. We've got the -- our existing business banker team working very diligently to trying to find those good solid relationships that bring in some of those lower-cost operating accounts.

Yes. One thing I will just touch on just in the second quarter, being a business bank, we generally see a lot of our operating accounts, our low-cost operating accounts go out with the tax season. So we do see outflows there. It's expected a lot of that comes back. And one of the things I know we're really proud of is just the increase -- the incremental increase in our average noninterest-bearing deposits over time. So like that book is growing despite some of the seasonality of what business have to go through. So I know the team is working really hard to make that happen and continue to focus on that.

Yes, that's right. So there's one more question right now, and that is how much is left in the current buyback program?

There's about $5 million left in the current buyback right now.

Okay. And that can always be changed. And again, our buybacks will be, like I said, throttled for the immediate future based upon the concentration in commercial real estate, but earnings also augment that. So we're looking forward to some opportunities that's been good overall.

Very much appreciate all of the questions that came in this afternoon. And as always, we're happy to take any conversations offline as well. We'll be in New York next week for the KBW conference. And we're always at the other conferences throughout the year as well, so including the Brean Capital when that one comes up. So we're looking forward to that.

So thank you very much for your investment in us, and we will continue to do our best to get asset quality back to where we want it to be and continue to perform at these good numbers and look forward to talking with you.

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 Brean Capital, will join us at the end of the call today with his questions. [Operator Instructions] 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.

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 note 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-on-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. Our market remains vibrant, and we continue to see opportunities. We are, of course, tuned into 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 2 years, we've been hovering around that $2.2 billion total asset mark. We 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. 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 1 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. 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 8 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.

Slide 8 shows that MNSB 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 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.

Thank you, Jeff. On Slide 9, we summarize our financial performance over the last 5 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 nonrecurring $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. 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 4 quarters, we've recognized onetime events that appear in our reported net interest margin. So we thought it was important to show the net interest margin without these nonrecurring transactions. In Q2 2025, we recovered $1.3 million in interest from a nonperforming asset. And in each of the last 3 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 5 quarters is 3.50%, which trends closely to the core net interest margin. 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? So I'd like to share a little bit more detail on how we've achieved that. Over 1/3 of our loan portfolio is variable or will reprice in the next 6 months, giving us quick asset sensitivity if rates increase. And 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. And 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. Over the last 5 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 reprice 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. 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% to 5% for 2026.

On Slide 15, we demonstrate how our share repurchase program has positively impacted our existing shareholders. Over the last 2 quarters, we repurchased over 482,000 shares, resulting in $0.30 per share accretion. The Board will consider future buyback programs when appropriate.

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. 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. As of the end of the first quarter, our portfolio composition consists of 30% nonowner-occupied commercial real estate, 25% owner-occupied commercial real estate, 16% in construction, 13% in multifamily, 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 5 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. 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 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, nonaccruals 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 nonaccrual loans there on the slide, and you can see that most of the nonaccruals are attributable to only 2 relationships. Our low net charge-offs demonstrate that even when loans move to nonaccrual, 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. 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 of 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. 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 10x 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, our robust stress testing demonstrates that we remain strongly capitalized even in a worst-case scenario, and our classified and nonperforming 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.

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

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 are submitted through the portal after we hear from Chris 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 1 minute. [Technical Difficulty]

Yes, we got you. Thank you, Chris.

Great. Sorry, a couple of settings there. So I wanted to ask about customer behavior just in terms of if folks are more cautious or more optimistic and just kind of how that may or may not impact your new business pipeline in the next few quarters.

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

Yes. 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. But in real estate, I think we're continuing to see good opportunities. I think people -- it's hard to say if -- yes, I think we're definitely seeing a good amount of opportunities in the pipeline.

And 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. And so 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. But 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. And I don't know if it's a general change in where people are putting their money again, but it's -- the business bankers have been keeping busy. And so yes, we're not seeing anything that would lead us to believe things are slowing down any more than they perhaps already had.

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.

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

Okay. And then the net interest margin still seems like it has some potential positive change as some nonaccrued 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?

Yes. Yes, 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. And on the loan side, again, as the yield curve kind of steepens, we're going to be able to deploy those at a nice margin spread as our loans tend to fall around the 5-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 this result [indiscernible].

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

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

Yes, which is somewhere between that 53% and 55%. We think it's absolutely doable. But one of the difficulties right now, if we do put a loan on nonaccrual, 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. But we can -- 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.

Got you. Okay. And then last question for me just goes back to your new hire and the sort of expertise that she brings in the gov con 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.

So we're definitely focused on that. I'll turn the question over to Tom in just a second. But yes, 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 she -- Blue Delta and what she does as a minority equity investor, everybody wants to have time with that group, and there's other groups in that space as well. But -- so we -- 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 -- it's a little bit more of an effort. But Tom, I'll turn it over to you.

Sure. A lot -- 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. And we are seeing some progress already with actual results. And so 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. But I do think that overall, we expect to see growth on the lending and deposit side.

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' question, is the bank actively working with the developments along the Route 50 corridor out to Middleburg, Tom?

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 like 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. So it's not fully dependent on that. But going out that way, there's certainly a lot of growth in development. But for us, we're mainly focused a little bit closer into the Beltway.

Great. Yes, it's safer. 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 further out, it was 31%. So 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. And so 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?

Yes. I'd just say we were very pleased with our current buyback plan, and the Board is always looking at ways to expand capital in ways that make sense for shareholders. So that won't change, and that will continue.

So I think that's a safe answer to that question. And as looking at the website right now, there's no other questions in the queue. So 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. So if you find you have any questions once the call is done, please always feel free to reach out. We're happy to talk with you one-on-one and look forward to that opportunity. Thank you, everyone, and have a great rest

[Audio Gap]

Welcome. My name is Jeff Dick. I'm the Chairman and CEO of MainStreet Bancshares, Inc. and MainStreet Bank. Thank you for joining our 2025 earnings webcast, which has been prerecorded due to inclement weather. If you have questions for us, please reach out to me or my Chief of Staff, Billy Freesmeier, at (703) 481-4579 to schedule a meeting. We will also be attending the February 4 and 5 Janney Conference in Scottsdale, Arizona, and would be happy to answer any questions at that time.

With me today is our Chief Financial Officer, Alex Vari; and our Chief Lending Officer, Tom Floyd. 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.

We are fortunate to do business in an excellent market. The D.C. metropolitan area is much more than host to just the federal government. With our major universities, tourism, cutting-edge technologies, data centers, world-class medical facilities and Fortune 500 companies, it's a great place for a community bank to call home. By the numbers, the median household income is at $125,000. The average home listing price is $810,000 and the average time on market is 38 days. The D.C. market remains vibrant, and we continue to see plenty of good opportunities. The federal government is and has historically been a significant strength. And on the rare occasion it isn't, we're on it and respond quickly to address any impact it may have on our business strategy.

We've done a good job of strategically managing growth, always attempting to maximize our core profitability over a growth for growth's sake strategy. We are a Virginia-chartered bank, and we've been rooted in the Washington, D.C. metropolitan community for 22 years. We have a great reputation in our market with a good organic growth story. Our branch-light strategy is incredibly efficient given the high cost of real estate. And while we always provide a full service to those who require it, we also rely upon the delivery of banking services using robust technology that allows us to put our bank in your office and our customers love it.

Our seventh branch located in Downtown Middleburg, Virginia is opening in February. Devon Porter, son of the renowned banking duo, Rod Porter and Georgia Derrico, is leading our efforts in that market and has already accumulated over $100 million of low-cost deposits.

Slide 7 shows that MNSB is a small-cap stock that trades on the NASDAQ Capital Markets Exchange and is listed on the Russell 2000 Index. As of year-end, we traded at 80% of tangible book value. Last October, we filed an 8-K indicating that the company refreshed its share repurchase plan to increase the capacity to $10 million. We will file a 10b5-1 plan when we are outside of this trading blackout period. Since October, we were successful in repurchasing 209,000 shares at a price accretive to book. Alex will tell you a little more about that later.

During today's presentation, you'll see that we have successfully navigated the headwinds of our 2024 technology transition, emerging with a disciplined capital allocation strategy and a much improved financial performance. Our current performance reflects a company that is more focused and financially resilient than ever. We're proud of that quick recovery, and you'll hear more about our favorable net interest margin, good expense control, good asset quality and strong capital.

At this point, I will turn the presentation over to our CFO, Alex Vari. Alex?

Thank you, Jeff. On Slide 8, we summarize our financial performance over the last 4 quarters as well as for the year 2025. 2025 was a year that saw us shift our focus back to core banking, and we worked hard to position ourselves to springboard our performance in 2026.

We closed the year with earnings per common share at $1.76. Our return on average assets was 0.73%. Our return on average tangible common equity was 7.24%, and our net interest margin was 3.46%. Despite working through a small handful of problem credits, we still grew net interest income by 11% over the year. Our net interest margin remains healthy, and we are poised to see even more funding cost relief throughout 2026. We have focused diligently on becoming more efficient and have positioned ourselves to demonstrate that throughout 2026. Lastly, we saw meaningful loan and deposit growth during the fourth quarter, and we expect that momentum to continue into the new year.

Page 9 highlights our intentional management of our loan-to-deposit ratio to maximize our net interest income. Our liquidity position remains strong with ample funding sources, particularly in our secured credit availability. As of the end of the year, we have expanded our liquidity facilities, covering over 30% of our entire deposit portfolio.

Moving to Slide 10, you will see our core net interest margin has remained steady over the last 9 months, confirming the fundamental health of our balance sheet. In working through a couple of challenged credits, the bank recorded nonrecurring interest reversals of $600,000, specific to 2 relationships that were moved to nonaccrual this quarter. You can refer to our presentation of non-GAAP ratios at the back of the slide deck for additional details. With the noise of 2025 behind us, the core portfolio remains strong. Given our current loan and deposit momentum, we expect to see not just net interest margin resilience but improvement as we move through the coming year.

Turning to Slide 11, you'll see a deposit mix that is a direct reflection of our disciplined business customer-focused strategy. Over the last 5 quarters, we haven't just tried to grow the portfolio, we've optimized it. By constantly recalibrating our mix, we successfully driven down our cost of deposits by 71 basis points year-over-year, almost in lockstep with the Federal Reserve rate reduction cycle. We are leaning into this optimism by expanding our branch footprint and targeting high-value niche industries to further scale our noninterest-bearing base. We aren't just looking for any deposit growth. We are looking for profitable, low-cost and scalable funding.

Slide 12 lays out our estimated expense run rate for the first 2 quarters of the year. After demonstrating 3 quarters of normalized expenses, we expect the first 2 quarters of 2026 to be consistent with the fourth quarter of 2025. We also expect loan growth to be 3% to 4% over the first 6 months. Lastly, we quickly put our share buyback program into action by repurchasing 209,000 shares during the last quarter at a price that was 28% accretive to book value. We will continue to look for opportunities to repurchase shares and enhance shareholder value.

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. As we recap the fourth quarter and 2025, I'm incredibly proud of our team's unwavering commitment to being a consistent and reliable financial partner. That dedication is reflected in our fourth quarter results where we saw healthy growth across the loan portfolio, specifically in desirable categories. Perhaps most notably, we maintained our credit discipline, finishing the year with annual net charge-offs at virtually 0. Over the next few minutes, I'm excited to delve into the details of our portfolio composition and trends that drove these results.

Slide 14 highlights our portfolio diversification. The headline here is that we delivered net portfolio growth while simultaneously reducing our CRE concentration. Pulling back in commercial real estate was intentionally done to manage risk and a result of being more selective on which opportunities to pursue, allowing us to focus our energy on the strategic growth of owner-occupied commercial real estate, where we see stronger full relationship opportunities.

As of the end of 2025, our portfolio composition consists of 30% nonowner-occupied commercial real estate, 24% owner-occupied commercial real estate, 16% construction, 12% multifamily, 12% residential real estate and 6% 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 15 is a lens into our government contracting portfolio. We've experienced good results in this portfolio and see opportunity for expansion here based on our view of the market share and our position in the market. Before I dive into the slide, I want to assure you that we're in constant contact with our borrowers in this highly dynamic space to ensure we are appropriately supporting our clients and effectively managing risk. Our portfolio has 27 asset-based lines of credit in place where all advances are supported by a borrowing base of billed receivables.

As you can see, these 29 lines have balances of $12.3 million outstanding with total commitments of $67.3 million, which equates to an 18% utilization rate. Over the average lines lifetime, this is relatively consistent. Our entire government contracting book has only $1.4 million in outstanding term debt. These loans are amortizing rapidly with an average remaining term of 24 months. The highlight here is the average deposit relationships attributable to this portfolio are $93.6 million over the quarter. The portfolio's strong deposit-to-credit relationship provides a significant funding advantage with deposits averaging nearly 7x the outstanding credit.

The next slide highlights that our loan portfolio is well positioned for stable or falling rates. 67% of our portfolio has rate resets beyond 6 months with the remaining 33% with rate resets within 6 months. Of those, loans with a faster reset, 60% have a weighted average floor rate of 5.84%. As we move into 2026, we anticipate this will help our net interest margin as rates are expected to remain stable or decrease.

Slide 17 shows our trend in average new loan size moving downward over the last several years. This highlights that in the current environment, we're sticking to smaller-sized opportunities within our market.

Moving to Slide 18, you will see the trend in stress test estimates over the past 5 quarters. While the estimated worst-case stress loss has increased this quarter to $62.9 million, I want to draw your attention to the strength of our balance sheet. Even under these heightened hypothetical scenarios, our pre- and post-stress capital ratios remain very strong with a post-stress common equity Tier 1 ratio of 11.8%, 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 at virtually 0. 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 stress test methodology, we utilize loan level testing for all construction and investor commercial real estate. For all other categories, we apply the worst ever historical loss rates to our current balances. And finally, 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 with low charge-offs and our capital base remains solid, both pre and post stress test.

In Slide 19, you will see our classified assets at 2.69%, non-accruals at 1.69% and other real estate owned at 0.09%. While we monitor these closely, the most important takeaway is our history of execution. Our low net charge-offs demonstrate that even when loans move to nonaccrual, our team is highly effective at protecting principal. We remain diligent in our workout efforts and are confident in our ability to drive favorable outcomes for these specific credits.

In summary, we're pleased to deliver a quarter of consistent disciplined performance, marked by a 2% growth in the loan portfolio quarter-on-quarter and a strategic focus on smaller quality opportunities and on building full relationships. We have maintained a well-diversified loan book, actively managed across all categories. Crucially, our robust stress testing demonstrates we remain strongly capitalized even in a worst-case scenario and our classified and nonperforming assets are at manageable levels, supported by proven historical track record of timely successful resolutions. We remain confident that our disciplined and relationship-focused approach positions us to deliver consistent performance and long-term value for our shareholders and the communities we serve.

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

Thank you, Tom. That was very positive. While the snow kept us remote today, we want to make sure that all of your questions are addressed. Again, please feel free to reach out to me or my Chief of Staff, Billy Freesmeier at (703) 481-4579 to schedule a meeting. Additionally, we look forward to connecting in person at the Janney Conference in Scottsdale on February 4 and 5, where we will be available for further discussion.