PART I – FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements, notes, and management's discussion and analysis for the reporting period [Consolidated Financial Statements](index=3&type=section&id=Item%201%20%E2%80%93%20Consolidated%20Financial%20Statements) The unaudited consolidated financial statements detail the company's financial position, operations, and cash flows, highlighting significant growth in net income and asset base [Consolidated Statements of Financial Condition](index=3&type=section&id=Consolidated%20Statements%20of%20Financial%20Condition) This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time Financial Position Comparison (in thousands USD) | Metric | June 30, 2019 (unaudited) | December 31, 2018 | | :--- | :--- | :--- | | **Total Assets** | **$1,184,764** | **$1,100,613** | | Loans, net | $983,574 | $917,125 | | **Total Liabilities** | **$1,055,728** | **$979,362** | | Total deposits | $1,011,131 | $920,137 | | **Total Stockholders' Equity** | **$129,036** | **$121,251** | - Total assets grew by **7.6%** to **$1.18 billion** in the first six months of 2019, primarily driven by a **7.2% increase in net loans**, funded by a **9.9% increase in total deposits**[8](index=8&type=chunk) [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) This statement reports the company's revenues, expenses, and net income over specific periods Income Statement Highlights (in thousands USD, except per share data) | Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $9,885 | $7,508 | $19,233 | $14,283 | | Provision for Loan Losses | $750 | $1,395 | $1,075 | $2,030 | | **Net Income** | **$3,431** | **$1,503** | **$6,678** | **$3,189** | | Diluted EPS | $0.42 | $0.26 | $0.81 | $0.55 | - Net income for the second quarter of 2019 more than doubled to **$3.4 million** compared to **$1.5 million** in Q2 2018, driven by a **31.7% increase in net interest income** and a significant reduction in the provision for loan losses[10](index=10&type=chunk) [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) This statement presents net income and other comprehensive income components, reflecting total non-owner changes in equity Comprehensive Income (in thousands USD) | Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $3,431 | $1,503 | $6,678 | $3,189 | | Other comprehensive income (loss) | $366 | $(132) | $581 | $(265) | | **Comprehensive Income** | **$3,797** | **$1,371** | **$7,259** | **$2,924** | [Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) This statement details changes in the company's equity accounts over specific periods - Total stockholders' equity increased from **$121.3 million** at year-end 2018 to **$129.0 million** as of June 30, 2019, primarily due to **$6.7 million in net income** and **$0.6 million in other comprehensive income**[12](index=12&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes the cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary for Six Months Ended June 30 (in thousands USD) | Cash Flow Category | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $6,731 | $3,912 | | Net cash used in investing activities | $(70,990) | $(135,322) | | Net cash provided by financing activities | $70,994 | $125,184 | | **Increase (Decrease) in Cash** | **$6,735** | **$(6,226)** | - For the first six months of 2019, the company experienced a net increase in cash and cash equivalents of **$6.7 million**, primarily funded by a **$91.0 million net increase in deposits**[14](index=14&type=chunk) [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations of accounting policies and financial data, covering investment securities, loans, derivatives, fair value, and lease accounting [Note 1: Organization and Accounting Policies](index=8&type=section&id=Note%201.%20Organization%2C%20Basis%20of%20Presentation%20and%20Impact%20of%20Recently%20Issued%20Accounting%20Pronouncements) This note outlines the company's organizational structure, basis of financial statement presentation, and impact of new accounting pronouncements - On April 22, 2019, the Company's common stock was approved for listing on the **Nasdaq Capital Market** under the symbol "MNSB"[18](index=18&type=chunk) - The Company is classified as an **"emerging growth company"** and a **"smaller reporting company,"** which allows it to comply with certain reduced public company reporting requirements[18](index=18&type=chunk) - The Company is preparing for the adoption of ASU No. 2016-13 (CECL), effective for fiscal years beginning after December 15, 2019, which requires the measurement of all expected credit losses for financial assets[64](index=64&type=chunk) [Note 2: Investment Securities](index=18&type=section&id=Note%202.%20Investment%20Securities) This note details the composition and fair value of the company's investment securities portfolio Investment Securities Portfolio (in thousands USD) | Category | June 30, 2019 (Fair Value) | Dec 31, 2018 (Fair Value) | | :--- | :--- | :--- | | Available-for-sale | $60,079 | $55,979 | | Held-to-maturity (Amortized Cost) | $24,946 | $26,178 | | **Total** | **$85,025** | **$82,157** | - The company does not consider any securities in its portfolio to be **other-than-temporarily impaired** at June 30, 2019, with unrealized losses primarily attributed to changes in interest rates, not credit deterioration[73](index=73&type=chunk)[74](index=74&type=chunk) [Note 3: Loans Receivable](index=20&type=section&id=Note%203.%20Loans%20Receivable) This note provides a breakdown of the loan portfolio, including credit quality and nonaccrual status Gross Loan Portfolio Composition (in thousands USD) | Loan Category | June 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Commercial Real Estate | $425,862 | $377,761 | | Construction and Land Development | $203,873 | $183,551 | | Residential Real Estate | $158,406 | $149,627 | | Commercial & Industrial | $117,905 | $114,221 | | Consumer – Non Real Estate | $88,421 | $102,277 | | **Total Gross Loans** | **$994,467** | **$927,437** | - Troubled Debt Restructurings (TDRs) decreased significantly to **$1.5 million** as of June 30, 2019, from **$3.4 million** at December 31, 2018[87](index=87&type=chunk) - Nonaccrual loans decreased to **zero** as of June 30, 2019, down from **$1.9 million** at year-end 2018[85](index=85&type=chunk) [Note 4: Derivatives and Risk Management](index=26&type=section&id=Note%204.%20Derivatives%20and%20Risk%20Management%20Activities) This note describes the company's use of derivative instruments for risk management and related income - The notional amount of interest rate swaps used to assist commercial loan customers with their risk management increased to **$51.2 million** at June 30, 2019, from **$36.6 million** at December 31, 2018[89](index=89&type=chunk)[91](index=91&type=chunk) - The company generated loan swap fee income of **$181,000** for Q2 2019 and **$471,000** for H1 2019, with no such income recorded in the same periods of 2018[91](index=91&type=chunk) [Note 5: Fair Value Presentation](index=27&type=section&id=Note%205.%20Fair%20Value%20Presentation) This note explains the fair value measurements of financial instruments, categorized by valuation inputs - The company's entire portfolio of available-for-sale securities and derivative instruments are classified as **Level 2** in the fair value hierarchy, meaning their values are derived from observable market data for similar assets[96](index=96&type=chunk)[98](index=98&type=chunk) - Assets measured at fair value on a nonrecurring basis include Other Real Estate Owned (OREO), which totaled **$1.2 million** at June 30, 2019, and are classified as **Level 3**[100](index=100&type=chunk)[101](index=101&type=chunk) [Note 6: Earnings Per Common Share](index=30&type=section&id=Note%206.%20Earnings%20Per%20Common%20Share) This note details the calculation of basic and diluted earnings per common share Earnings Per Share Calculation | Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :--- | :--- | :--- | :--- | :--- | | Net income (in thousands) | $3,431 | $1,503 | $6,678 | $3,189 | | Weighted average shares | 8,250,210 | 5,810,383 | 8,246,562 | 5,801,541 | | **Basic and diluted EPS** | **$0.42** | **$0.26** | **$0.81** | **$0.55** | [Note 8: Leases](index=31&type=section&id=Note%208.%20Leases) This note discusses the adoption of the new lease accounting standard and its impact on the financial statements - On January 1, 2019, the Company adopted the new lease accounting standard (ASC 842), resulting in the recognition of a **$2.7 million right-of-use asset** and a corresponding lease liability[110](index=110&type=chunk) Lease Balances as of June 30, 2019 (in thousands USD) | Item | Amount | | :--- | :--- | | Lease liabilities | $2,599 | | Right-of-use assets | $2,583 | [Management's Discussion and Analysis (MD&A)](index=33&type=section&id=Item%202%20%E2%80%93%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the strong first-half performance driven by loan growth, increased net interest income, new non-interest income streams, and improved credit quality, while maintaining strong liquidity and capital [Results of Operations](index=36&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, including net income, interest margin, and expense trends - Net income for Q2 2019 increased by **$1.9 million** to **$3.4 million** year-over-year, driven by increased interest income from loan growth, a **$758,000 increase in non-interest income**, and a **$645,000 decrease in the provision for loan losses**[130](index=130&type=chunk) Net Interest Margin and Spread Comparison (Q2) | Metric | Q2 2019 | Q2 2018 | | :--- | :--- | :--- | | Net Interest Margin | 3.51% | 3.54% | | Interest Rate Spread | 2.89% | 3.12% | - Non-interest income for Q2 2019 grew **130.0% year-over-year**, boosted by new revenue from **$181,000 in loan swap fees** and **$263,000 in gains from the sale of guaranteed portions of SBA loans**[148](index=148&type=chunk) - Non-interest expense for Q2 2019 increased **26.9% year-over-year**, mainly due to a **$1.0 million rise in salaries and benefits** from hiring seventeen new employees and related costs[149](index=149&type=chunk) [Financial Condition](index=47&type=section&id=Financial%20Condition) This section reviews the company's balance sheet, focusing on asset growth, deposit funding, and credit quality - Total assets increased by **$84.2 million (7.6%)** to **$1.2 billion** at June 30, 2019, from year-end 2018, driven by a **$66.4 million (7.2%) increase in net loans**[174](index=174&type=chunk)[176](index=176&type=chunk) - Total deposits grew by **$91.0 million (9.9%)** to over **$1.0 billion**, with certificates of deposit increasing by **$108.7 million**, partly from brokered deposits used to fund loan growth[180](index=180&type=chunk) Nonperforming Assets (in thousands USD) | Metric | June 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total non-performing loans | $34 | $1,950 | | Other real estate owned | $1,207 | $0 | | **Total non-performing assets** | **$1,241** | **$1,950** | | NPA to Total Assets Ratio | 0.10% | 0.18% | [Liquidity and Capital Resources](index=49&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet financial obligations and maintain adequate capital levels - The company maintains multiple sources of liquidity, including **$20.0 million in FHLB advances outstanding** with an additional unused borrowing capacity of **$286.4 million** as of June 30, 2019[182](index=182&type=chunk) - As of June 30, 2019, both the Company and the Bank exceeded all regulatory capital requirements and were considered **"well capitalized"** under regulatory guidelines[188](index=188&type=chunk)[191](index=191&type=chunk) - The company had outstanding loan commitments of **$281.7 million** and standby letters of credit of **$672,000** as of June 30, 2019[192](index=192&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=42&type=section&id=Item%203%20%E2%80%93%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This disclosure is not required for smaller reporting companies, hence no information is provided - Disclosure is not required for smaller reporting companies[193](index=193&type=chunk) [Controls and Procedures](index=42&type=section&id=Item%204%20%E2%80%93%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal control over financial reporting - Management concluded that as of June 30, 2019, the company's disclosure controls and procedures were effective[193](index=193&type=chunk) - No material changes were made to the internal control over financial reporting during the second quarter of 2019[194](index=194&type=chunk) PART II – OTHER INFORMATION This section covers legal proceedings, risk factors, and exhibits related to the company's operations [Legal Proceedings](index=43&type=section&id=Item%201%20%E2%80%93%20Legal%20Proceedings) As of June 30, 2019, the Company was not involved in any material legal proceedings beyond routine business matters - The Company is not involved in any pending legal proceedings other than routine matters occurring in the ordinary course of business, which are not expected to be material[196](index=196&type=chunk) [Risk Factors](index=43&type=section&id=Item%201A%20%E2%80%93%20Risk%20Factors) This section is not required for smaller reporting companies, with reference made to the previously filed Form 10 for risk factors - Disclosure is not required for smaller reporting companies; reference is made to the Form 10 filed on February 15, 2019[197](index=197&type=chunk) [Exhibits](index=44&type=section&id=Item%206%20%E2%80%93%20Exhibits) This section lists the exhibits filed with the report, including CEO and CFO certifications and XBRL data - The report includes CEO and CFO certifications under Rule 13a-14(a) and Section 1350, as well as XBRL instance and taxonomy documents[201](index=201&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to to Commission file number: 001-38817 MainStreet Bancshares, Inc. (Exact Name of Registrant as Specified in Its Charter) Virginia 81-28710 ...