Q2 2025 MainStreet Bancshares Inc Earnings Call

Employed in our company Chief Financial Officer, Tom Schmeling.

Unknown Executive: officer, Tom Floyd, and our company chief financial officer, Tom Chmelik.

Chris Meramec director of research for Janney Montgomery, Scott will join US at the end of the call today with his questions.

Jeff Dick: Chris Marinac, Director of Research for Janney Montgomery Scott, will join us at the end of the call today with his If you'd like, you can also submit written questions throughout the presentation using the web portal. will address your questions at the end of the presentation.

Speaker Change: If you'd like you can also submit written questions throughout the presentation using the web portal.

Speaker Change: We'll address your questions at the end of the presentation. If for some reason we Miss your question during the discussion please reach out to us after the webcast.

Jeff Dick: If for some reason we miss your question during the discussion, please reach out to us after the web.

Speaker Change: I'd like to take a moment to point you to our safe Harbor page that describes the context of forward looking statements that we may make today.

Jeff Dick: I'd like to take a moment to point you to our Safe Harbor page that describes the context of forward-looking statements that we may make.

Speaker Change: Please also note that we may use certain non-GAAP measures, which are identified as such within the presentation materials.

Jeff Dick: Please also know that we may use certain non-GAAP measures, which are identified as such, within the presentation material.

Speaker Change: The D C metropolitan area is much more than host so just the federal government with our major universities tourism Datacenters World class medical facilities.

Unknown Executive: The D.C. metropolitan area is much more than hosts to just the federal government. With our major universities, tourism, data centers, world-class medical facilities. and Fortune 500 companies, it is a great place to do business. still have low unemployment and good median household income. housing is still undersupplied, and it remains a seller's market.

Speaker Change: And fortunate 500 companies it is a great place to do business.

Speaker Change: I'll have low unemployment and good median household incomes.

Speaker Change: <unk> is still under supplied and it remains a seller's market.

Speaker Change: While the market is vibrant and we see good opportunities we are affected by the actions taken by the federal and DC governments.

Unknown Executive: While the market is vibrant and we see good opportunities, we are affected by the actions taken by the federal and D.C. government. and we monitor those actions to assess their impact on our business strategy.

Speaker Change: And we monitor those actions to assess their impact on our business strategy.

Speaker Change: Youll see that slide four recaps, our growth story and Theres not a whole lot more to say on that slide.

Unknown Executive: You'll see that slide four recaps our growth story, and there's not a whole lot more to say on that slide.

Speaker Change: The next slide where Virginia community Bank, serving the Washington, DC Metropolitan area for over 21 years, we have a great organic growth story using a branch light strategy.

Unknown Executive: The next slide, we're a Virginia community bank serving the Washington DC metropolitan area for over 21 years. We have a great organic growth story using a branch light strategy. 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 78% of tangible book value.

Speaker Change: <unk> is a small cap stock that trades on the NASDAQ capital market exchange and is listed on the Russell 2000 index.

Speaker Change: As of quarter end, we traded at 78% of tangible book value.

Speaker Change: During todays presentation Youll hear good news about our net interest margin expansion, our solid earnings and our strong asset quality.

Unknown Executive: During today's presentation, you will hear good news about our net interest margin expansion, our solid earnings, and our strong asset quality.

Speaker Change: And at this point I'll turn the presentation over to our bank CFO Alex Berry.

Alex Berry: And at this point, I'll turn the presentation over to our bank CFO, Alex Berry. Thank you, Jeff. On slide seven, we summarize our financial performance over the last five quarters, with this last quarter illustrating our commitment to be a high-achieving community bank. Earnings per share increased to $0.53, our return on average assets to 0.86%. Our return on average tangible common equity to 8.84% and our net interest margin to 3.75%. We are very excited to report such strong quarterly results. Contributing factors during the quarter included improvement to non-performing loans while recovering a meaningful amount of accrued interest.

Speaker Change: Thank you Jeff on.

Speaker Change: On slide seven we summarize our financial performance over the last five quarters with this last quarter illustrating our commitment to be a high achieving community bank, earning.

Speaker Change: Earnings per share increased to 53.

Speaker Change: Our return on average assets to 0.86%.

Speaker Change: Our return on average tangible common equity to 8.84% and our net interest margin to 375%.

Speaker Change: We are very excited to report strong quarterly results.

Speaker Change: Contributing factors during the quarter included improvements in nonperforming loans, while recovering a meaningful amount of accrued interest.

Speaker Change: Continuing to lower our cost of funds and improve our net interest margin.

Alex Berry: continuing to lower our cost of funds and improve our net interest margin. We are seeing good loan opportunities as we look at our third and fourth quarter pipeline.

Speaker Change: We are seeing good loan opportunities as we look at our third and fourth quarter pipeline.

Speaker Change: On slide eight we recognize it's important to understand expectations for future quarters and want to call out a few onetime nonrecurring transactions during the quarter.

Alex Berry: On slide 8, we recognize it's important to understand expectations for future quarters and want to call out a few one-time, non-recurring transactions during the quarter on both the revenue and expense side. You can see we had non-recurring revenue of $1.5 million consisting of a recovery of accrued interest and fees on a previous loan in recognition of some non-interest income gain. Focusing on core community banking, we had non-recurring expenses of $1.8 million related to personnel downsizing, contract terminations, and realigning certain Without these non-recurring adjustments, our EPS would have been $0.56 and our return on average assets would have been 0.91%.

Speaker Change: Both the revenue and expense side.

Speaker Change: You can see we had nonrecurring revenue of 1.5 million consisting of a recovery of accrued interest and fees on our previous loan and recognition of noninterest income gains.

Speaker Change: Focusing on core community banking, we had nonrecurring expenses of $1 8 million related to personnel downsizing contract terminations and realign certain accruals.

Speaker Change: Without these nonrecurring adjustments, our EPS would have been 56 cents.

Speaker Change: And our return on average assets would have been nine 1%.

Speaker Change: Slide nine highlights our intentional management of our loan to deposit ratio to maximize our net interest income which has increased for the third consecutive quarter.

Alex Berry: Slide nine highlights our intentional management of our loan to deposit ratio to maximize our net interest income, which has increased for the third consecutive. Our liquidity position remains strong with ample funding sources, particularly in our secured credit availability. As of the quarter end, we have liquidity in available credit facilities to match 38% of our deposits.

Speaker Change: Our liquidity position remains strong with ample funding sources, particularly in our secured credit availability as of quarter end, we have liquidity and available credit facilities to match, 38% of our deposit portfolio.

Speaker Change: Moving to slide 10, you will see continued improvement to our net interest margin.

Alex Berry: Moving to slide 10, you will see continued improvement to our net interest margin. Well, we are reporting a quarterly net interest margin of 3.75%. Our core net interest margin also showed meaningful expansion quarter over quarter. Our net interest margin rose primarily as our cost of funds continued to contract. Our total funding costs reduced 20 basis points to 3.29% during Looking at where the net interest margin is headed, we believe the margin will hold steady and could see progress as we have $152 million in CDs repricing in the second half of the year and a robust loan pipeline.

Speaker Change: While we are reporting our quarterly net interest margin of 375% our core net interest margin also showed meaningful expansion quarter over quarter.

Speaker Change: Our net interest margin rose, primarily as our cost of funds continued to contract.

Speaker Change: Our total funding costs reduced 20 basis points to 329% during the quarter.

Speaker Change: Looking at where the net interest margin is headed we believe the margin will hold steady and could see progress as we have $152 million in Cds repricing in the second half of the year and the robust loan pipeline.

Speaker Change: Slide 11 shows resilience and consistency in our deposit portfolio mix.

Alex Berry: Flight 11 shows resilience and consistency in our deposit portfolio mix. On slide 12, you will see our business banking team continues to attract and grow non-interest and low-cost deposits, helping to replace higher-cost funding and expand our net interest margin. Core Deposits remained consistent with the prior quarter, while non-interest bearing and low-cost deposits grew by $6 million during the quarter. We also reduced our reliance on non-core deposits by 19%, which was accretive to our net interest margin.

Speaker Change: On Slide 12, you will see our business banking team continues to attract and grow noninterest in low cost deposits, helping to helping to replace higher cost funding and expand our net interest margin.

Speaker Change: Core deposits remained consistent with the prior quarter.

Speaker Change: Noninterest bearing and low cost deposits grew by $6 million during the quarter.

Speaker Change: We also reduced our reliance on noncore deposits by 19%, which was accretive to our net interest margin.

Speaker Change: Slide 13 lays out our estimated expense run rate for the remainder of the year we.

Alex Berry: Slide 13 lays out our estimated expense run rate for the remainder of the year. We continue to be committed to driving operating expense down as we focus on core community banking. We were able to achieve our strong quarterly performance at the current operating level. While we are projecting additional expense reductions, we have revised our estimations for the second half of the year that include operating costs of the community bank and a major metropolitan market. Attracting and retaining talented bankers, expanding our customer footprint, and the ever-growing regulatory burden are costs all community banks must face. We believe we are well positioned in the marketplace to build on our strong quarterly performance for the second half of the year.

Speaker Change: We continue to be committed to driving operating expense down as we focus on core community banking.

Speaker Change: We were able to achieve our strong quarterly performance at the current operating level.

Speaker Change: While we are projecting additional expense reductions we have revised our estimations for the second half of the year that include operating costs of the community Bank and a major metropolitan market.

Speaker Change: Attracting and retaining talented bankers, expanding our customer footprint and the ever growing regulatory burden our cost all community banks must face.

Speaker Change: We believe we are well positioned in the marketplace to build on our strong quarterly performance for the second half of the year.

Speaker Change: On slide 14, we typically get questions about stock buybacks, we have an active buyback plan in place with capacity of just over $3 million to repurchase shares.

Unknown Executive: On slide 14, we typically get questions about stock buybacks.

Unknown Executive: We have an active buyback plan in place with capacity of just over $3 million to repurchase shares. We will continue to look at opportunities to execute buybacks in line with our strategy.

Speaker Change: We will continue to look at opportunities to execute buybacks in line with our strategy.

Speaker Change: At this point I'll turn the presentation over to Tom Floyd, our Chief lending officer to discuss our loan portfolio and loan performance.

Tom Floyd: 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, Alec. I'm incredibly proud of the hard work everyone on the team put in during the second quarter and our consistent strong performance is a testament to that effort. Over the next few minutes, I'm excited to delve into the details and trends about our portfolio composition. I'll also highlight the proactive steps we're taking to actively manage risk. We've experienced positive trends in our workout credits, and I look forward to sharing more specifics on that as well.

Speaker Change: Alex.

Speaker Change: I'm incredibly proud of the hard work everyone on the team put in during the second quarter and our consistent strong performance is a testament to that effort.

Speaker Change: Over the next few minutes I'm excited to delve into the details and trends about our portfolio composition.

Speaker Change: I'll also highlight the proactive steps, we're taking to actively manage risk with.

Speaker Change: We've experienced positive trends in our workout credits and I look forward to sharing more specifics on that as well.

Speaker Change: Our commitment to serving our community remains unwavering and we are optimistic about what the future holds.

Tom Floyd: Our commitment to serving our community remains unwavering, and we are optimistic about what the future holds. Slide 15 provides an overview of our diversified loan portfolio as of the end of the quarter. Our total loan outstanding are $1.8 billion distributed as follows. 30% is non owner occupied commercial real estate. 21% is owner occupied commercial real estate. 18% is construction. 14% is multifamily. 11% is residential real estate. And 6% is commercial and industrial. Additionally, it's worth noting that nearly all of our construction portfolio has a suitable interest reserve held at the bank. Slide 16 highlights our commercial real estate concentration over the last seven quarters.

Speaker Change: Slide 15 provides an overview of our diversified loan portfolio as of the end of the quarter.

Speaker Change: Our total loan outstanding are $1 8 billion distributed as follows.

Speaker Change: 30% is non owner occupied commercial real estate, 21% is owner occupied commercial real estate.

Speaker Change: 18% is construction.

Speaker Change: 14% as multifamily.

Speaker Change: 11% is residential real estate.

Speaker Change: 6% is commercial and industrial <unk>.

Speaker Change: Additionally, it's worth noting that nearly all of our construction portfolio has a suitable interest reserve held at the bank.

Speaker Change: Slide 16 highlights our commercial real estate concentration over the last seven quarters.

Speaker Change: We've always effectively manage our exposure here and finished the quarter at 366% of capital.

Tom Floyd: We've always effectively managed our exposure here and finished the quarter at 366% of capital. Our board sets our limit at 375%. So we've been strategically building our pipeline to maximize our opportunity to grow assets. And based on the pipeline, a number of quality opportunities in our market, we're confident we can continue to operate at our comfort threshold. You may be familiar with the asset on slide 17, as we've discussed it in the last few presentations. Not all stories have a happy ending, but I'm happy to report this one does. We've collected 100% of principal interest at the default rate and all fees.

Speaker Change: Our board sets our limit of 375%. So we've been strategically building our pipeline to maximize our opportunity to grow assets and based on the pipeline number of quality opportunities in our market. We're confident we can continue to operate at our comfort threshold.

Speaker Change: You may be familiar with the asset on slide 17, as we've discussed it in the last few presentations not all stories have a happy ending but I'm happy to report this one does with.

Speaker Change: We've collected 100% of principal interest at the default rate in all fees. This is the outcome, we anticipated and it's excellent to see this resolution will come to pass.

Tom Floyd: This is the outcome we anticipated, and it's excellent to see this resolution come to pass.

Speaker Change: Slide 18 is a lens into our government contracting portfolio before I dive into this slide I want to assure you. 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.

Tom Floyd: Slide 18 is a lens into our government contracting portfolio.

Tom Floyd: Before I dive into this slide, I want to assure you that we're in constant contact with our borrowers in this highly dynamic space to ensure we're appropriately supporting our clients and effectively managing risk. Our portfolio has 29 asset-based lines of credit in place where all advances are supported by a borrowing base of billed receivables. These receivables are deposited directly into our bank from our client's respective customers and the funds are used to automatically curtail their corresponding credit line. As you can see, these 29 lines of balances of $13 million outstanding, with total commitments of $79.2 million, which equates to a 16% utilization rate.

Speaker Change: Our portfolio has twenty-nine asset based lines of credit in place for all advances are supported by our borrowing base of billed receivables.

Speaker Change: These receivables are deposited directly into our bank from our clients respective customers and the funds are used to automatically curtail their corresponding credit lines.

Speaker Change: As you can see these 29 lines of balances of 13 million outstanding with total commitments of $79 2 million, which equates to a 16% utilization rate.

Speaker Change: Over the average lines lifetime this is relatively consistent.

Tom Floyd: Over the average line's lifetime, this is relatively consistent. Our entire government contracting book only has $2.5 million in outstanding term debt. These loans are amortizing rapidly with an average remaining term of 30 months. It's worth noting that the average deposit relationship attributable to this portfolio is $75.5 million over the quarter, which equates to 580% of outstandings and 95% of commitment.

Speaker Change: Our entire government contracting book only has $2 5 million in outstanding term debt. These loans are amortizing rapidly with an average remaining term of 30 months.

Speaker Change: It's worth noting that the average deposit relationship attributable to this portfolio is $75 $5 million over the quarter, which equates to 580% of outstandings in 95% of commitments.

Speaker Change: The next slide highlights that our loan portfolio was well positioned for stable or falling rates, 70% of our portfolio as rate resets beyond six months with the remaining 30% with rate resets within six months.

Tom Floyd: The next slide highlights that our loan portfolio is well positioned for stable or falling rates. 70% of our portfolio has rate resets beyond six months, with the remaining 30% with rate resets within six months. of those loans with a faster reset, 45% have a weighted average floor rate of six and a half. As we progress in 2025, we anticipate this will help our net interest margin as rates are expected to remain stable or decrease.

Speaker Change: Of those loans with a faster reset 45% have a weighted average floor rate of six and a half.

Speaker Change: As we progress in 2025, we anticipate this will help our net interest margin as rates are expected to remain stable or decrease.

Speaker Change: Slide 20 is a snapshot of our year to date production and volume of loans participated to other banks.

Tom Floyd: Slide 20 is a snapshot of our year-to-date production and volume of loans participated to other banks. As you'll see, our originations have resulted in $97 million outstanding in loans year-to-date and we've participated out $13 million over the same period. This is a testament to our lending process, which is relationship driven and supported by superior credit underwriting, resulting in strong market demand for our organic loan production.

Speaker Change: As Youll see our origination our originations have resulted in 97 million outstanding and loans year to date, and we participated out $13 million over the same period.

Speaker Change: This is a testament to our lending process, which is relationship driven and supported by superior credit underwriting, resulting in strong market demand for our organic loan production.

Speaker Change: Slide 21 shows our trend in average new loan size moving downward while our legal lending limit has increased this highlights that in the current environment, we're sticking to smaller sized opportunities within our market.

Tom Floyd: Slide 21 shows our trend and average new loan size moving downward while our legal lending limit has increased. This highlights that in the current environment, we're sticking to smaller sized opportunities within our market.

Speaker Change: Slide 22 shows we have a nominal level of classified loans and nonperforming assets.

Tom Floyd: Slide 22 shows we have a nominal level of classified loans and non-performing assets.

Speaker Change: Slide 23 shows the trend in stress tests over the past eight quarters, and the resulting impact to capital.

Tom Floyd: Slide 23 shows the trend in stress tests over the past eight quarters and the resulting impact of capital. The Q2 stress test for all earning assets reflects the worst-case stress loss estimated at $46.79 million. In all quarters, we remain strongly capitalized. The stress test includes loan-level testing for all construction and investor commercial real estate. For all other loan categories, we use the balance in each call report category, multiplied by our worst-ever loss for that call report category. For investments, we use the market price. And finally, for bank loan life insurance, we determine the liquidation value.

Speaker Change: The Q2 stress tests for all earning assets reflects the worst case stress loss estimated at $46 seven 9 million.

Speaker Change: In all quarters, we remain strongly capitalized.

Speaker Change: The stress test includes loan level testing for all construction and investor commercial real estate for all other loan categories. We use the balance in each call report category multiplied by our worst ever loss for that call report category.

Speaker Change: Our investments will use the market price and finally for bank owned life insurance, we determined the liquidation value.

Speaker Change: In summary, our team has done an excellent job serving our clients, while managing risk over the second quarter of 2025, and we continue to see our efforts with our workout credits pay off no pun intended.

Tom Floyd: In summary, our team has done an excellent job serving our clients while managing risk over the second quarter of 2025, and we continue to see our efforts with our workout credits pay off, no pun intended. We're passionate about serving our community and we love seeing it thrive and we are optimistic about the future.

Speaker Change: We're passionate about serving our community and we love seeing a thrive and we are optimistic about the future.

Speaker Change: That wraps it up for a loan presentation back to you Jeff Thanks, Tom.

Tom Floyd: That wraps it up for our loan presentation.

Jeff Dick: Back to you, Jeff. Thanks, Tom. As I indicated at the top of the hour, and as you've heard during this brief presentation, we've shared good news about our net interest margin expansion, our solid earnings and our strong asset quality.

Speaker Change: As I indicated at the top of the hour and as you've heard during this brief presentation. We've shared good news about our net interest margin expansion, our solid earnings and our strong asset quality.

Speaker Change: We will address the questions that have been submitted through the portal. After we hear from Chris Meramec Director of research at Janney Montgomery Scott.

Chris Marinac: will address the questions that have been submitted through the portal after we hear from Chris Marinac, Director of Research at Channing Montgomery Scott. Chris, good morning, or good afternoon, I'm sorry. Hey, hey, Jeff, can you hear me okay? I can, yes. All right, great.

Chris Meramec: Chris Good morning, or good afternoon I'm sorry.

Speaker Change: Hey, Hey, Jeff can you hear me, Okay, I can yes, hi.

Chris Meramec: Great.

Speaker Change: Wanted to ask about sort of loan pipelines and loan growth and kind of whats a sustainable pace.

Tom Floyd: I wanted to ask about sort of loan pipelines and loan growth and kind of what's a sustainable pace both, you know, in the next couple quarters, as well as as you think through your business plan the next couple of years. Tom Floyd join us. Sure, great question, Chris. So in the beginning of the year, we had given guidance for low single digit loan growth, and we still feel like that's good guidance. We've had a little bit of a retraction in the first quarter, but that review is normal just based on the timing of payoffs. And when we can get the right opportunities, close and book, we're looking for not just growth for growth sake, but the right opportunities.

Speaker Change: And the next couple of quarters as well as as you think through your business plan in the next couple of years.

Speaker Change: Okay, Tom Floyd you want to take that sure great question, Chris So in the beginning of the year, we had given guidance for low single digit loan growth and we still feel like that's good guidance, we've had a little bit of a retraction in the first quarter, but that we view as normal just based on the timing of payoffs and when we can get the right opportunities close and book we're looking for.

Speaker Change: Not just growth for growth's sake, but the right opportunities and we are very encouraged with what we have in the pipeline. So.

Speaker Change: And.

Tom Floyd: And we are very encouraged with what we have in the new change in administration and the effects of Doge and other things. We did sort of try to constrain our lending while we waited to see the total impact on the the economy, that is going to come from that, we think things have settled down now. So with that pace, that pace of growth, I mean, there seems to be limited pressure on funding. So do you see the funding mix continuing to get more favorable and perhaps giving you further relief on the margin? Yeah, as I mentioned in the presentation, we're going to have opportunities to reprice some of our funding.

Speaker Change: Youll remember two in the.

Speaker Change: The first part of the year or first half of the year with the change in administration and.

Speaker Change: The effects of Dos and other things, we did sort of try to constrain our lending.

Speaker Change: While we waited to see the total impact on on.

Speaker Change: The economy.

Speaker Change: That.

Speaker Change: It was going to come from that we think things have settled down now.

Speaker Change: So.

Speaker Change: So without pace the pace of growth there seems to be limited pressure on funding. So do you see the funding mix continuing to get more favorable and perhaps giving you further relief on the margin.

Speaker Change: Yeah.

Speaker Change: As I mentioned in the presentation, we're going to have opportunities to reprice some of our funding.

Speaker Change: Deposits in our market of course are challenging but.

Tom Floyd: Deposits in our market, of course, are challenging, but our business bankers are doing a great job getting out there, growing relationships, picking up new relationships. And so I think between what we're able to do, repricing CDs and developing new relationships and new deposits, that's going to help us on the funding side here in the back half of the year. And I think the business bankers focusing on the core deposits that they're focusing on and not interfering is really helping out. And we're seeing some of those things that they're working on right now.

Speaker Change: Our business bankers are doing a great job getting out there growing relationships.

Speaker Change: Picking up new relationships and so I think between what we're able to do a.

Speaker Change: Repricing Cds and in developing new relationships and new deposits.

Speaker Change: That's going to help us on the funding side here in the back half of the year and I think the business bankers focusing on the core deposits with they're focusing on the noninterest bearing is really helping out and we're seeing some of those things that they're working on right now.

Speaker Change: And on the sort of the total balance sheet management side.

Tom Floyd: And on the sort of the total balance sheet management side, you know, it's It's funny, there are times where over the years where you could just focus on growing one side over the other. This is a time where we're really looking at, you know, growing both sides in a fairly lockstep manner. And as Tom Floyd alluded to earlier, looking a little bit more at, you know, what loans are going to help to maximize, you know, the earnings power of the company. And then likewise, you know, on the deposit side, do we need to bring in those deposits right now?

Speaker Change: <unk>.

Speaker Change: It's funny there was a there were times where over the years, where you can just focus on growing one side over the other. This is this is a time, where we're really looking at.

Speaker Change: Growing both sides.

Speaker Change: Fairly lock step manner.

Speaker Change: As Tom Florida alluded to earlier looking at a little bit more at what loans are going to help to maximize the earnings power of the company and then likewise on the deposit side do we need to bring in those deposits right now can we let them some of the other higher cost deposits run off keep our loan to.

Tom Floyd: Can we let them some of the other higher cost deposits run off? You know, keep our loan to deposit ratio right around 100. And, you know, not just growing for growth sake, but really trying to trying to manage the balance sheet to get the to maximize our earnings power of the company.

Speaker Change: That ratio right around 100.

Speaker Change: And not just growing for growth's sake, but really trying to trying to manage the balance sheet to get the to maximize our earnings power of the company.

Speaker Change: Great and my other question just has to do with asset quality in general. They my impression is that the criticized and classifieds are moving.

Tom Floyd: Great, and my other question does have to do with asset quality in general, and my impression is that the criticizing classifieds are moving in a positive direction.

Speaker Change: Positive direction I'm, just kind of curious what else you see on the horizon, neither FERC new issues that could faster or just general valuation trends as we're now at the midpoint of the year.

Tom Floyd: I'm just kind of curious what else you see on the horizon, either for, you know, new issues that could fester or just general valuation, you know, trends as we're now at the midpoint of the year. Yeah, great question. We are pleased with what we're seeing in terms of credit quality across the board. We're continuing to monitor asset prices of underlying real estate. We, as we've discussed previously, have a very low exposure to office space, but we still keep an eye on all of the asset levels in our market. We're seeing a slight uptick in days on market for residential real estate, but it's still not at a level that is concerning.

Speaker Change: Yes, Great question, we are pleased with what we're seeing in terms of credit quality across the board, we're continuing to monitor asset prices of underlying real estate.

Speaker Change: As we've discussed previously have a very low exposure to office space, but we still keep an eye on all of the asset levels in our market, we're seeing a slight uptick in days on market for residential real estate, but it's still not at a level that is concerning its still a sellers' market.

Tom Floyd: It's still a seller's market. We are going to continue to monitor these things very closely. But right now, we are pleased with the trend we're seeing. No one knows exactly what the future holds, but we are pleased with the trends we're seeing with regards to credit quality.

Speaker Change: So we are going to continue to monitor these things very closely but.

Speaker Change: Now we are pleased with the trend we're seeing no one knows exactly what the future holds but we are pleased with the trends, we're seeing with regards to credit quality.

Speaker Change: And now I'll just sneak one more in just in general the government contracting business that you see whether it's in your bank or just around you in the marketplaces is that stabilizing or is the uncertainty that existed earlier this year kind of still still in place.

Tom Floyd: And now I'm just going to sneak one more in, just in general, you know, the government contracting business that you see, whether it's in your bank or just around you in the marketplaces, is that stabilizing or is the uncertainty that existed earlier this year kind of still in place? We do believe that it's stabilizing. It's a dynamic marketplace, and there's lots of news coming out constantly. So it's something we have to make sure that we don't, you know, get comfortable with or take our eye off the ball. And so, you know, the key is just continually to be in communication with our customers to make sure we're appropriately managing risk.

Speaker Change: We do believe that it is stabilizing it's a dynamic marketplace and theres lots of news coming out.

Speaker Change: Constantly so it's something we have to make sure that we don't.

Speaker Change: Get comfortable with or take our eye off the ball and so the key is to continually to be in communication with our customers.

Speaker Change: To make sure we're appropriately managing risk, but overall I do think that there is a sense that theres a little more stability than there was a few months ago.

Tom Floyd: But overall, I do think that there's a sense that there's a little more stability than there was a few months ago.

Speaker Change: Great I'll see the floor. Thank you very much for taking my questions.

Chris Marinac: Great, I'll see the floor up.

Chris Marinac: Thank you very much for taking my questions. Yeah, Chris, as always, thank you as well.

Speaker Change: Chris as always thank you as well and the one thing I would tag onto the government contracting question, because I think it's a really good one but.

Tom Floyd: And, you know, one thing I would tag on to the government contracting questions, I think it's a really good one. But, you know, part of we've we've actually changed our borrowing base certificate. And one of the things that we ask the customer to do is to really attest that there's not been any change to their contract structures. And so we get that on at least a monthly basis. And, you know, the lenders are in fairly frequent conversation with those borrowers as well. And we're only advancing on billed receivables. We don't advance on billed receivables at all.

Speaker Change: Part of it we've actually changed our borrowing base certificate in one of the things that we.

Speaker Change: Ask the customer to do is to really a test that theres not been any change to their contract structures.

Speaker Change: And so we get that on at least a monthly basis and.

Speaker Change: The lenders are.

Speaker Change: Barely.

Speaker Change: A frequent conversation.

Speaker Change: Conversation with those borrowers as well.

Speaker Change: And we're only advance in Unbilled receivables.

Speaker Change: Don advanced on Unbilled receivables at all and I think for our term debt structure in the Gulf Gulf Coast Gulf Com portfolio, Tom indicated that it was like two and a half million dollars standing so.

Tom Floyd: And I think for our term debt structure in the gov.com portfolio, Tom indicated that was like two and a half million dollars standing. So that's also very strong.

Speaker Change: That's also very strong.

Speaker Change: At this point in time, we will turn to we've got a few questions from.

Unknown Executive: At this point in time, we've got a few questions from you all on the phone this afternoon. We've got some good questions in the queue today.

Speaker Change: You are all on the phone this afternoon so.

Speaker Change: We've got some good questions in the queue today.

Speaker Change: First off can you talk about efforts on growing core deposits since Avenue has been shut down.

Unknown Executive: First up, can you talk about efforts on growing core deposits since Avenue has been shut down? Yeah, you know, kind of what we talked about a little bit earlier, you know, we like to keep the loan and deposit ratio high to maximize the earnings potential of the company. And where we're focusing, you know, the business bankers are really engaged in getting into, you know, some of the markets where maybe they didn't have as much of a presence before really trying to get new relationships and grow those deposits, you can see their efforts there by over the last quarter, we had growth in our non interest and low, low cost deposits, which is really, you know, really beneficial to, you know, really speaking to the efforts that they're that they're doing there.

Speaker Change: Yeah.

Speaker Change: Kind of what we talked about a little bit earlier.

Speaker Change: We like to keep the loan to deposit ratio high to maximize the earnings potential of the company and where we're focusing the business bankers are are really engaged in getting into some of the markets, where maybe they didn't have as much of a presence before really trying to.

Speaker Change: Get new relationships.

And grow those deposits you can see their efforts, thereby over the last quarter, we had growth in our noninterest in low low cost deposits, which is really really beneficial to.

Speaker Change: Really speaking to the efforts that they are that Theyre doing there I would also say you know the lending team is is really engaged in.

Tom Floyd: I would also say, you know, the lending team is, is really engaged in, you we're looking at deals and making sure we're really focused on on that as well.

Speaker Change: With their customers and bringing in <unk>.

Tom: Deposits as it were looking at deals and making sure. We're really focused on on that as well I don't know if there's anything you want to add to that Tom.

Tom Floyd: I don't know if there's anything you want to add to that, Tom, from the from the lending side. Absolutely. I appreciate that. We're at our best when we work as a team with the business banking and lending side, working in concert with expanding existing relationships and identifying the right opportunities. So it's something that we take very seriously in terms of focusing on teamwork and working together to build relationships. So we are very excited, like I said, about the pipeline that we've built, and in the diversified industries that we have an opportunity to serve and work with.

Tom: From the lending side absolutely.

Tom: Appreciate that.

Tom: We are at our best when we work as a team with the business banking and lending side working in concert with expanding existing relationships and identifying the right opportunities. So it's something that we take very seriously in terms of focusing on teamwork and working together to.

Tom: Build relationships. So we are very excited like I said about the pipeline that we've built and in the diversified industries that we have an opportunity to serve and work with shell.

Tom: Yes.

Tom Floyd: So Yeah, and you know, anecdotally, I've heard just, you know, the the referrals, you know, that the lenders are giving the business bankers and vice versa, and really, you know, collaborating to, to, you know, penetrate more into the market than we than we have before and kind of build those have been successful. I think we're seeing good opportunities on that side.

Tom: <unk> heard just the referrals that the lenders are giving the business bankers and vice versa, and really collaborating to penetrate more into the market than we than we have before and kind of build those have been successful and I think we're seeing.

Tom: Good opportunities on that side.

Tom: Will there be any costs associated with closing down Avenue in future quarters.

Unknown Executive: Will there be any costs associated with closing down Avenue in future quarters? I'll take that one, we, the bulk of the cost. Unknown Executive, Jeff Dick, Thomas Chmelik, Richard Vari, Thomas Chmelik, Richard Vari, We're always trying to get those maintenance costs as low as possible, but you're not going to see anything I believe significant in the future.

So I'll take that one we've the bulk of the costs.

Tom: The staffing and the different systems that were utilizing in order to run that have been all incurred we're in a strictly a maintenance mode. At this point in time.

Tom: As we look to see if theres any future value that we can we can find from the solution but.

Tom: So.

Tom: Yes.

Tom: We're always trying to get those maintenance costs as low as possible, but youre not going to see anything.

Speaker Change: I believe significant in the future as we agree Alex Yeah, I agree with that okay.

Alex Berry: Do you agree, Alex? Yeah, I agree with that.

Speaker Change: How many shares were repurchased in the second quarter, yes.

Unknown Executive: How many shares were repurchased in the second quarter?

Speaker Change: Yes, good question.

Speaker Change: We didn't see any block trades occur.

Unknown Executive: Yeah, good question. You know, we didn't see any block trades, you know, occur in the second quarter, you know, other than, you know, when we were admitted to the Russell 2000, the reconstitution. So there just wasn't a lot of opportunity for those.

Speaker Change: Occur in the second quarter other than.

Speaker Change: When we were admitted to the Russell 2000, and the reconstitution. So there just wasn't a lot of opportunity for those so.

Speaker Change: With regulatory limits on CRE will the bank's growth be limited.

Unknown Executive: With regulatory limits on CRE, will the bank's growth be limited? No, we've always done a good job operating within our board set policy. And I will say that with the opportunities in our pipeline right now, we have a very wide range of industries that are non CRE, with owner occupied CRE being a major, a major component, which obviously doesn't count against that ratio. So we are very excited about that. And with low single digit as what we've, you know, discussed as our guidance, we see no issue there. And I think the growth in capital too, as we're going to see in the coming quarters will obviously augment some of those ratios.

Speaker Change: No.

Speaker Change: We've always done a good job operating within our sports that policy and I will say that with the opportunities in our pipeline right. Now we have a very wide range of industries that are non CRE.

Speaker Change: With owner occupied CRE being a major.

Speaker Change: A major component, which obviously doesn't count against that ratio. So we are very excited about that and with low single digit.

Speaker Change: What we've discussed.

Speaker Change: <unk> discussed as our.

Speaker Change: Guidance that we see no issue there.

Speaker Change: I think the growth in capital too is we're going to see in the coming quarters will also augment some of those ratios.

Speaker Change: Okay.

Speaker Change: Did you repurchase any shares in the quarter if not.

Unknown Executive: Did you repurchase any shares in the quarter? If not, no. Already asked that one. Oh, sorry. My apologies.

Speaker Change: Oh, sorry, I apologize.

Speaker Change: Ah.

Speaker Change: What are your profitability goals for 2026, ROA and our O E.

Unknown Executive: What are your profitability goals for 2026 ROA and ROE? Yeah, yeah, great question. You know, I, you know, I think our quarterly results, you know, show that we're well on our way to a 1% ROA. You know, there's always uncertainty, you know, with market conditions and what, you know, the right environment is going to look like. But, you know, we're seeing good loan opportunities, we're seeing good deposit opportunities, we're trending in a very positive way. And so I think those things are going to put us on that trajectory to be where we want to be.

Speaker Change: Yeah, Yeah, great question.

Speaker Change: I think our quarterly results.

Speaker Change: Show that we're well on our way to a 1% ROA.

Speaker Change: There's always uncertainty.

Speaker Change: With market conditions and what.

Speaker Change: The rate environment is going to look like but we're seeing good loan opportunities were seeing good deposit opportunities.

Speaker Change: Where we're trending in a very positive way and so I think those those things are going to.

Speaker Change: Put us on that trajectory to be where we want to be.

Speaker Change: And I think on the ROE.

Unknown Executive: And I think on the ROA, I mean, if we get close to the 1%, that's going to be back in the double digit numbers where we were historically.

As we get closer to 1% that's going to be back into the double digit numbers, where we were historically.

Speaker Change: What levels of profitability do you need to produce to justify the bank's independence.

Unknown Executive: What levels of profitability do you need to produce to justify the bank's independence? That's, that's a great question. And, you know, we feel like certainly has to be 1% or more as the standard.

Speaker Change: That's that's a great question and.

Speaker Change: We feel like.

Speaker Change: Certainly has to be 1% or more.

Speaker Change: Standard.

Speaker Change: We don't look at it as much as justifying the bank's independents as we do looking at the opportunities that are right for the bank at this time and so.

Unknown Executive: And we don't look at it as much as justifying the bank's independence as we do, you're looking at the opportunities that are right for the bank at this time. And so, you know, as we as we consider good, you know, corporate alternatives, you know, that's really one of the key things that we hone in on is do we feel like we can produce a better income stream independently or than we can with whatever opportunity we might be looking at, whether it's a merger or an acquisition, either way. And, you know, that's really what drives us more than anything else is, you know, constantly seeing what opportunities there are in the market and then sort of determining, you know, OK, what does this look like compared to what we can produce on our own?

Speaker Change: As we as we consider good corporate alternatives.

Speaker Change: That's really one of the key things that we hone in on is do we feel like we can produce a better income stream independent independently or than we can with whatever opportunity we might be looking at.

Speaker Change: Whether it's a merger or an acquisition.

Speaker Change: Either either way and that's really what drives us more than anything else is constantly seeing what opportunities. There are in the market and then sort of determining okay. What does this look like compared to what we can produce on our own and so that's really the best way to answer that because it is as you know there's not a magic number.

Unknown Executive: And so that's really the best way to answer that, because, as you know, there's not a magic number inside of that.

Speaker Change: Inside of that.

Speaker Change: Other than if you can't get at least back up into that 1% range.

Unknown Executive: Other than if you can't get at least a backup into that one percent range, it probably doesn't make sense for for a bank in a major metropolitan area.

Speaker Change: It probably doesn't make sense for for a bank in a major metropolitan area and just to kind of refocus of it we've always talked about.

Unknown Executive: And just to kind of refocus a bit, you know, we've we've always talked about, you know. in our recent quarters. The deposit getting is one of the more difficult, low cost deposit getting is one of the most difficult challenges that we have in front of us. And the team is doing an excellent job. And as Tom indicated, the business bankers and the lenders are working in lockstep to try to sort of shake any opportunity that they have. Ironically, the large banks can sometimes be our better friends because in certain cases, they're using AI now to decision funds availability on on check deposits.

Speaker Change: In our recent quarters.

Speaker Change: Deposit gathering is one of the more difficult low cost deposit getting as one of the most difficult challenges that we have in front of us and the team is doing an excellent job and as Tom indicated the business bankers and the lenders are working in lockstep to try to sort of shake any opportunity that they.

Speaker Change: They have.

Speaker Change: Ironically, the large banks can sometimes be a better France because in certain cases, they are using AI now to decision funds availability on check deposits and.

Speaker Change: We've heard some some interesting stories from our customers are new customers, who have come to us because.

Unknown Executive: We've heard some interesting stories from our customers or our new customers who have come to us because they've had a sizeable deposit go through, they know the fund's cleared on the other side, and they got an email out of the blue that said your funds are going to be held for 21 days. and they learned that it was a decision made with artificial intelligence. And so, you know, you take the good with the bad. But, you know, in those cases, it's a bad outcome for the customer at that institution. It's a great outcome for a community bank that deals more with relationships.

Speaker Change: <unk> had a deposit.

Speaker Change: Sizable deposit go through they know the funds cleared on the other side and they automatically they got an email out of the Blue that said your funds are going to be held for 21 days.

Speaker Change: And they learned that it was a decision made with artificial intelligence and <unk>.

Speaker Change: So you take the good with bad but in those cases, it's a bad outcome for the customer at that institution that is a great outcome for a community bank that deals more with relationships.

Speaker Change: We don't do anything foolish, either we make sure funds clear, but it certainly doesn't take 21 days so.

Unknown Executive: We don't do anything foolish either. We make sure funds clear, but it certainly doesn't take 21 days. Again, we find the opportunities where we can, and a lot of our business bankers came out of the large banks, and they just do a terrific job for us in maintaining those relationships and digging into the community.

Speaker Change: Again, we find the opportunities, where we can and a lot of our business bankers came out of the large banks and they just do a terrific job for us in maintaining those relationships.

Speaker Change: And digging into the communities so very.

Speaker Change: Very much appreciate everybody's comments today and look forward to reporting hopefully.

Unknown Executive: So very much appreciate everybody's comments today, and look forward to reporting hopefully soon. quarters like this as we go forward. And we're on track to do so. But we never know what the economy might do.

Speaker Change: Quarters like this as we go forward and we're on track to do so, but we never know what the economy might do so again. Thank you very much and we appreciate your investment in mainstream banking and we look forward to talking in the future as always if you.

Unknown Executive: So again, thank you very much. And we appreciate your investment in MainStreet Bank. And we look forward to talking in the future.

Speaker Change: Have any other questions or comments, please feel free to reach out we're happy to talk with you.

Unknown Executive: As always, if you have any other questions, comments, please feel free to reach out. We're happy to talk with you. Thank you.

Speaker Change: <unk>.