MainStreet Bancshares(MNSB) - 2024 Q2 - Quarterly Results

Q2 2024 Financial Highlights MainStreet Bancshares reported strong Q2 2024 financial results with significant deposit and loan growth, stable net interest margin, and progress in its Banking-as-a-Service initiative Financial Performance Overview MainStreet Bancshares reported a net income of $2.6 million for the second quarter of 2024, with total deposits and loans both increasing to $1.8 billion year-over-year Q2 2024 Key Financial Results | Metric | Q2 2024 | YoY Change | | :--- | :--- | :--- | | Net Income | $2.6 million | N/A | | Total Deposits | $1.8 billion | +10.2% | | Total Loans | $1.8 billion | +8.6% | - The company's loan portfolio is described as solid, with net charge-offs representing only eight basis points of average gross loans, and nonperforming assets at 0.99% of total assets[4] Management Commentary Management noted a stabilized net interest margin at 3.15% in Q2 2024 despite industry pressures, with optimism for future improvement and strengthened core customer funding - The net interest margin settled at 3.15% for the quarter, with management expressing optimism for future improvement, pending actions by the FOMC and other external factors[3] - Core customer funding sources have been strengthened, now accounting for 78% of total deposits[3] - Loan growth was primarily driven by increased demand in commercial & industrial (C&I) loans and owner-occupied commercial real estate (CRE) lending[3] Strategic Initiatives: Banking-as-a-Service (BaaS) The company is advancing its proprietary Banking-as-a-Service (BaaS) platform, Avenu, which is currently in limited production with ongoing enhancements for scalability and compliance - Avenu is the company's unique BaaS solution, combining a purpose-built technology core with its own banking charter, differentiating it from sponsor-bank or middleware models[6] - The Avenu platform is currently live and in limited production, with final enhancements being integrated to ensure a scalable and compliance-focused solution[5] - Avenu targets fintechs, social media companies, application developers, and entrepreneurs who are innovating money movement[7] Consolidated Financial Statements (Unaudited) Unaudited consolidated financial statements detail the balance sheet, income statement, loan and deposit composition, and net interest margin analysis for Q2 2024 Consolidated Balance Sheet As of June 30, 2024, total assets grew to $2.09 billion, supported by increased net loans and deposits, leading to a rise in total stockholders' equity Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Total Assets | $2,093,746 | $1,949,351 | | Loans, net | $1,778,840 | $1,637,484 | | Total Deposits | $1,755,363 | $1,593,383 | | Total Liabilities | $1,869,031 | $1,738,843 | | Total Stockholders' Equity | $224,715 | $210,508 | Consolidated Statement of Income Net interest income for Q2 2024 decreased to $15.3 million due to higher interest expense, resulting in a net income of $2.6 million or $0.27 per diluted share Q2 Statement of Income Highlights (in thousands, except per share data) | Account | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :--- | :--- | :--- | | Total Interest Income | $33,327 | $30,706 | | Total Interest Expense | $18,038 | $11,435 | | Net Interest Income | $15,289 | $19,271 | | Provision for Credit Losses | $638 | $638 | | Total Non-interest Income | $873 | $810 | | Total Non-interest Expenses | $12,668 | $10,852 | | Net Income | $2,618 | $6,946 | | Net Income per Common Share, diluted | $0.27 | $0.85 | Loan, Deposit, and Borrowing Detail The bank's $1.80 billion loan portfolio is concentrated in real estate, while total deposits grew 10.2% year-over-year with a significant shift towards interest-bearing accounts Loan Portfolio Composition as of June 30, 2024 | Loan Type | Amount (in thousands) | % of Total | | :--- | :--- | :--- | | Commercial real estate | $845,030 | 46.9% | | Residential real estate | $449,700 | 25.0% | | Construction and land development | $410,698 | 22.8% | | Commercial and industrial | $93,559 | 5.2% | | Total Gross Loans | $1,801,219 | 100.0% | Deposit Growth and Composition Changes (YoY) | Deposit Type | YoY % Change | | :--- | :--- | | Non-interest bearing deposits | -19.1% | | Interest-bearing demand deposits | +151.7% | | Money market accounts | +25.2% | | Total Deposits | +10.2% | Average Balance Sheets and Net Interest Margin Analysis The net interest margin compressed to 3.15% in Q2 2024 due to a significant increase in the cost of interest-bearing liabilities, narrowing the interest rate spread Net Interest Margin Analysis (Q2 2024 vs Q2 2023) | Metric (annualized) | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Yield on interest-earning assets | 6.84% | 6.75% | | Cost of interest-bearing liabilities | 4.87% | 3.58% | | Interest Rate Spread | 1.97% | 3.17% | | Net Interest Margin | 3.15% | 4.24% | Key Financial Metrics and Ratios Key financial metrics and ratios for Q2 2024 highlight performance, asset quality, and capital adequacy, showing both challenges and stability Performance Ratios and Per Share Data Performance ratios for Q2 2024 declined year-over-year, with ROA at 0.50% and ROE at 4.70%, while tangible book value per common share increased to $23.72 Key Performance Ratios (Annualized, Q2 2024 vs Q2 2023) | Ratio | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Return on average assets (ROA) | 0.50% | 1.46% | | Return on average equity (ROE) | 4.70% | 13.40% | | Efficiency ratio | 78.38% | 54.04% | Per Share Data (Q2 2024 vs Q2 2023) | Metric | June 30, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Earnings per common share (diluted) | $0.27 | $0.85 | | Book value per common share | $25.99 | $24.36 | | Tangible book value per common share | $23.72 | $22.73 | Asset Quality Asset quality metrics showed some deterioration in Q2 2024 with non-performing assets at 0.99% of total assets, though net charge-offs remained minimal Asset Quality Indicators (as of June 30) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Non-performing assets to total assets | 0.99% | 0.00% | | Non-accrual loans to total gross loans | 1.15% | 0.00% | | Allowance for credit losses on loans to total gross loans | 0.95% | 0.97% | | Net charge-offs to average gross loans (annualized for Q2) | 0.08% | 0.00% | Capital Adequacy The bank maintained strong and stable regulatory capital ratios as of June 30, 2024, well above minimum requirements, with a Total risk-based capital ratio of 16.78% Regulatory Capital Ratios (Bank only, as of June 30) | Ratio | 2024 (Preliminary) | 2023 | | :--- | :--- | :--- | | Total risk-based capital ratio | 16.78% | 16.79% | | Tier 1 risk-based capital ratio | 15.85% | 15.83% | | Leverage ratio | 14.22% | 14.81% | | Common equity tier 1 ratio | 15.85% | 15.83% | Appendix: Non-GAAP Financial Measures This appendix provides reconciliations of non-GAAP financial measures, including Net Interest Margin (FTE) and Tangible Book Value Per Common Share Reconciliation of Non-GAAP Measures This section provides reconciliations for non-GAAP financial measures to their most directly comparable GAAP counterparts, such as Net Interest Margin (FTE) and Tangible Book Value Per Common Share - The reconciliation adjusts GAAP net interest income for the tax-equivalent effect of income from tax-exempt securities to calculate Net Interest Margin (FTE)[29] - Tangible common stockholders' equity is derived by subtracting intangible assets and preferred stock from total stockholders' equity, used to calculate tangible book value per common share[29] Key Non-GAAP Reconciliations (as of June 30, 2024) | Metric | GAAP | Non-GAAP | | :--- | :--- | :--- | | Net Interest Margin (Q2) | 3.13% | 3.15% (FTE) | | Book Value per Common Share | $25.99 | $23.72 (Tangible) | | Total Stockholders' Equity | $224.7M | $180.2M (Tangible Common) |