MainStreet Bancshares, Inc. Q4 2025 Earnings Call - NIM resilience, deposit cost drop and disciplined credit set stage for 2026
Summary
MainStreet Bank closed 2025 with a clean-up story turned operational momentum. Net interest margin held at 3.46% and net interest income rose 11% year over year, helped by a 71 basis point reduction in deposit costs and expanded liquidity facilities. Management emphasizes disciplined, relationship-driven lending, a branch-light model that is adding a seventh branch in Middleburg, and a share buyback program that repurchased 209,000 shares at a price 28% accretive to tangible book value.
Credit metrics look tidy, albeit with a few isolated problem credits that produced $600,000 of non-recurring interest reversals and raised nonaccruals to 1.69%. Stress testing shows a worst-case loss estimate of $62.9 million but leaves the bank well capitalized with a post-stress CET1 of 11.8%. Management is signaling modest loan growth for early 2026, expects further funding-cost relief, and is emphasizing profitable deposit mix and smaller, relationship-focused loans as the playbook for the year ahead.
Key Takeaways
- Core profitability improved: EPS $1.76 for 2025, return on average assets 0.73%, return on average tangible common equity 7.24% and net interest margin 3.46%.
- Net interest income grew 11% year over year despite navigating a 2024 technology transition, management says the core portfolio is healthy going into 2026.
- Deposit costs fell 71 basis points year over year, tracked closely with the Fed easing cycle, and management expects further funding cost relief in 2026.
- Liquidity expanded, with secured facilities covering over 30% of the deposit base, giving the bank ample funding optionality.
- Shareholder actions: refreshed buyback authorization to $10 million, repurchased 209,000 shares in Q4 at a price 28% accretive to book value, and a 10b5-1 will be filed after blackout. The stock traded at roughly 80% of tangible book at year-end.
- Loan growth and expense outlook: management expects loan growth of 3% to 4% in the first six months of 2026, and an expense run rate in H1 consistent with Q4 2025 after normalization.
- Credit quality: annual net charge-offs were virtually zero, classified assets 2.69%, nonaccruals 1.69%, and OREO 0.09%, although two relationships produced $600,000 in non-recurring interest reversals this quarter.
- Portfolio composition: 30% non-owner-occupied CRE, 24% owner-occupied CRE, 16% construction, 12% multifamily, 12% residential, and 6% commercial and industrial, with a deliberate pullback in non-owner-occupied CRE concentration.
- Government contracting book: roughly 27 to 29 asset-based lines, $12.3 million outstanding, $67.3 million commitments, 18% utilization, only $1.4 million in term debt outstanding, average remaining term about 24 months, and deposit relationships averaging $93.6 million per quarter, roughly seven times outstanding credit.
- Rate sensitivity: 67% of loans have rate resets beyond six months, the remaining 33% reset within six months, and of those quicker resets 60% have a weighted average floor of 5.84%, which should help NIM if rates fall.
- Stress testing and capital: worst-case stress loss estimate increased to $62.9 million, but pre- and post-stress capital ratios remain strong, with post-stress CET1 at 11.8%, well above regulatory well-capitalized thresholds.
- Balance sheet actions and strategy: branch-light model persists, opening a 7th branch in Middleburg where the new leader has already gathered over $100 million of low-cost deposits, reflecting a targeted growth approach.
- Loan mix trend: average new loan size is declining, signaling a shift to smaller, relationship-driven credits rather than larger single risks. Management frames this as deliberate risk management.
- Management message and risks: executives stress disciplined capital allocation and efficiency gains post-technology transition, but investors should watch nonaccrual trends, the handful of problem credits, and execution on deposit diversification and buybacks for proof points in 2026.
Full Transcript
Jeff Dick, Chairman and CEO, MainStreet Bancshares, Inc. and MainStreet Bank: 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 4th and 5th 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 $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 7th 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 Market and is listed on the Russell 2000 Index. As of year-end, we traded at 80% of tangible book value. Last October, we filed a Form 8-K, indicating that the company refreshed its share repurchase plan to increase the capacity to $10 million. We will file a Rule 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 value.
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 will 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?
Alex Vari, Chief Financial Officer, MainStreet Bancshares, Inc.: Thank you, Jeff. On slide 8, we summarize our financial performance over the last four 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 a 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 challenged credits, the bank recorded non-recurring interest reversals of $600,000, specific to two relationships that were moved to non-accrual 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 non-interest-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 two quarters of the year. After demonstrating three quarters of normalized expenses, we expect the first two quarters of 2026 to be consistent with the fourth quarter of 2025. We also expect loan growth to be 3%-4% over the first six 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.
Tom Floyd, Chief Lending Officer, MainStreet Bancshares, Inc.: Thank you, Alex. As we recap the fourth quarter in 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 zero. 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% non-owner-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 line’s 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 seven times the outstanding credit. The next slide highlights that our loan portfolio was well positioned for stable or falling rates. 67% of our portfolio has rate resets beyond six months, with the remaining 33% with rate resets within six 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 five 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 zero. 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%, nonaccruals 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-over-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.
Jeff Dick, Chairman and CEO, MainStreet Bancshares, Inc. and MainStreet Bank: 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 fourth and fifth, where we will be available for further discussion.
